“Give a Hoot! Don’t Pollute!” “Keep America Beautiful!”
It was in the 1970s that these slogans helped to kick-off the environmental movement. And, believe it or not, back then, people found it commonplace to litter. As kids, we witnessed people dropping their fast food wrapper out of the car window after consuming its contents. Or, flipping a cigarette butt onto the sidewalk, well…you get the picture.
Thankfully, America grew a conscience!
Since the 1970s there have been over 70 studies measuring littering. And these studies have measured its contents and impacts on local and state governments. Importantly, it was on December 2, 1970 that the Environmental Protection agency (EPA) was created. And, since its inception, the EPA has been working for a cleaner, healthier environment for the American people. Even better, the impact of this focus on our environment today has evolved and become global. In fact, this year in Davos at the World Economic Forum (WEF), there was a centrally focused theme of climate change and the environment. The World Economic Forum is well-known as an event where “the global power brokers spend the week mulling over major world challenges and how to solve them”, USA Today.
Environmental, Social and Governance (ESG)
For over 50 years America has continued the clean-up along roadsides to help “Keep America Beautiful”. Subsequently, corporations around the world have gotten on board placing the environment in focus giving birth to the environmental, social and governance (ESG) standards. And, ESG has been around for a few decades and has grown globally. But, if you’re just getting on board with understanding ESG, you might need a more defined meaning. So, here’s Investopedia’s definition of ESG…Environment, social and governance criteria are a set of standards for a company’s operations that socially conscious investors use to screen potential investments.
Environmental – how a company performs as a steward of nature.
Social – how it manages relationships with employees, suppliers, customers, and the communities where it operates.
Governance – a company’s leadership, executive pay, audits, internal controls and shareholder rights.
Additionally, ESG are the three central factors in measuring the sustainability and societal impact of an investment in a company or business, according to Wikipedia. And, these criteria help to better determine the future financial performance of companies (return and risk).
So, “Does ESG investing reduce or increase a portfolio’s potential returns?”
We think it’s important for many reasons to view our investments through an ESG prism. And, there are those on and off Wall Street who suggest it’s not likely to hurt the performance and more likely to help. Some suggest that ESG investing may offer higher returns and longer lifespans.
Here are some of those perspectives:
The Corporate Knights January 2019 report The Global 100 Difference, suggests that sustainable companies make the world a better place. And, it suggests they offer higher returns and longer lifespans. They (the Corporate Knights) cite the 2019 Global 100 ranking of the world’s most sustainable companies as proof of this suggestion. Additionally, researchers at the University of Hamburg and Deutsche Asset Management authored the largest study of its kind to date. In this study, they examined ESG and corporate financial performance (CFP). ESG and CFP were examined across more than 2,000 academic studies published since 1970. Finally, the report concluded that there is a positive correlation between ESG strategies and strong financial performance.
Both the growth of ESG globally and the vast sea of research point toward ESG as an important factor for investors.
And, a focus on ESG investing looks to be, at worst, a neutral effect on performance. So, if you’re inclined to have even the slightest environmental conscience, ESG investing makes sense. It’s a view we’ve had for a while. And, since 2015 have initiated a formalized process. As a result, this has led us to what we believe to be a greater understanding of the issues and has impact on the way we invest.
So, how do you as an investor do your homework on ESG investing and participate?
As an investor today, you’ll likely find comfort in knowing that you can tap into many resources when performing due diligence on companies, ETFs and mutual funds. For example, companies like Barron’s, ETF.com, S&P Dow Jones Indices/S&P Global and Morningstar are ESG equipped resources just to name a few.
Important Note: The views expressed in this post are as of the date of the posting and are subject to change based on market and other conditions. This post contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.
Please note that nothing in this post should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and should not be taken to be, investment, accounting, tax or legal advice. If you would like investment, accounting, tax or legal advice, you should consult with your own financial advisors, accountants or attorneys regarding your individual circumstances and needs. No advice may be rendered by Lenity Financial, Inc. unless a client service agreement is in place.
Corporate Knights, January 2019 Report, Forbes.com – Most Sustainable Companies in 2019, Karsten Strauss – https://www.forbes.com/sites/karstenstrauss/2019/01/22/the-most-sustainable-companies-in-2019/#35d49eb86d7d Reducing Litter on Roadsides by the Transportation Board of the National Research Academies. Georg Kell (United Nations Global Compact), “Five trends that show corporate responsibility is here to stay”, 6 January 2012https://www.forbes.com/sites/annefield/2018/11/26/sri-investing-in-the-us-now-12-trillion-in-aum/#5bb688dca3bc – US SIF Foundation Report – https://www.ussif.org/ESG & Corporate Financial Performance: Mapping the global landscape – December2015 https://institutional.dws.com/content/_media/K15090_Academic_Insights_UK_EMEA_RZ_Online_151201_Final_(2).pdfhttps://www.epa.gov/historyUSA Today
Lenity Financial, Inc.–Helping Yourself and Others – Socially Responsible Investing Momentum