Is Environmental, Sustainable and Governance (ESG) Investing a Hoax?

Recently, there has been conversation and controversy regarding the economic value of aligning your investments with your values. It is no secret that the public securities markets, like other capitalistic industries, seeks to interest new clients with promotional material that distinguishes it from consumer’s other options.

We have been studying the movement and development of ESG investing for almost a decade. Not unlike other initiatives, there are good and bad actors. We applaud the use of rigor and in-depth analysis for ESG investing.  We acknowledge that while “early adopters” were driven by their heart and their passions, this “movement” now represents about one third of total assets professionally managed and has gained validity along with solid, economic data points.

In fact, Morningstar reports that, despite 2020 being a generally terrible year because of the global pandemic, it was not a terrible year for investing, and, relatively speaking, it was a good year for sustainable investments. The better relative performance of sustainable funds is tied to their focus on companies with better ESG profiles and their alignment with the transition to a low-carbon economy. In 2020, sustainable funds demonstrated that investing with an emphasis on how a company manages material ESG risks and how it manages key stakeholders can produce good returns in an uncertain economic environment.

Barron’s reports in a recent commentary that sustainable investing can no longer be categorized as the future of investing. It is a reality today, just as issues such as climate change, cybersecurity, data protection, workplace diversity and inclusion, and better stakeholder alignment are now widely accepted as vital for better corporate citizenship and social outcomes.

The realization that a growing portion of their investor base is composed of sustainable investors is helping companies move away from a short-term shareholder-centric approach to a longer-term perspective that focuses on creating value for all stakeholders, with better outcomes for society and the planet. We saw this year that companies that are moving in this direction performed better during the global pandemic for all their stakeholders.

We will continue to thoughtfully navigate this arena with our clients analyzing and vetting investments in the themes that are important to them.

Our future depends on it!


If you would like to read the full articles referenced on this subject, click here:

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