Column: Socially Responsible Investing has Sustainable Upside
David M. Roth, BFATM Financial Planner of Fair Planet Investors
By David and Michelina Roth
In our March column, we introduced the concept of Socially Responsible Investing (SRI) which takes into account Environmental, Social, and Governance Factors (ESG). You may have noticed recent national headlines as well, like these from prominent Investment journal:
Michelina A. Roth of Fair Planet Investors
Blackrock says “Climate Metrics Will Drive Investment Gains” (Financial Advisor Magazine 2/25/21)
Aite Warns Wealth Managers, “Embrace ESG or Lose Market Share” (ThinkAdvisor.com 2/22/21)
Understanding the trends and trajectory of sustainable investment has never been more important (The US SIF Foundation 13th edition of the Report on US Sustainable and Impact Investing Trends 2020)
As ESG gains prominence, it is apparent that concern for environmental issues is something that people care about - the E in ESG. But there is growing awareness of the S and G also - the social and governance issues that are influencing our world, and the fact that these issues go hand in hand.
On August 19, 2019, the Business Roundtable, a lobbying group composed of leading CEOs in the US, released an updated Statement on the Purpose of a Corporation. This statement expressed a fundamental commitment to all stakeholders, including customers, employees, suppliers, communities, and shareholders.
This statement was necessary because in the last 30 years corporations have focused on short-term profits for shareholders only. Yet, the idea that short-term shareholder profit is the only goal is relatively recent. In the 1970’s Milton Friedman, who has been referred to as “the most influential economist” of the 2nd half of the last century, promoted the idea that “the sole purpose of a firm is to make money for its shareholders”, and our financial systems had been reflective of that reasoning since.
But the tide is turning as so many realize that this way of operating is not sustainable.
Interestingly, the upcoming local sale of SDS illustrates why we must adopt an approach in which all stakeholders matter, not just shareholders. It is easy to dismiss the harmful actions of companies on the other side of the world who seem so far away and disconnected from our lives. When things are closer to home, it becomes easier to see relationships and interdependence. The Friends of the White Salmon River’s film, Uprooted, highlights how the actions of one local company affect not just its shareholders but all of us - the success of SDS is connected to that of its employees, the community, and the natural world. No single company, private or public, exists in a vacuum - we are all connected. We live on a Planet with finite resources and a future for each of us is only possible if there is a future for all of us.
Another issue that hits close to home and illustrates this fact: the current pandemic and the issues of “essential” workers and their access to healthcare and fair wages (both social factors) makes clear that considering all stakeholders is not only necessary, but also profitable. NYU recently published an article saying, “Five years later, we have seen exponential growth in ESG and impact investing – due in large part to increasing evidence that business strategy focused on material ESG issues is synonymous with high-quality management teams and improved returns. A case in point: A recent study looked at the initial stock market reaction to the COVID-19 crisis (up to March 23) and found that companies scoring high on a “crisis response” measure (based on Human Capital, Supply Chain, and Products and Services ESG sentiment) were associated with 1.4-2.7% higher stock returns (Cheema-Fox et al., 2020). “ESG investing appears to provide downside protection, especially during a social or economic crisis. “ (Whelan et al. "ESG and Financial Performance: Uncovering the Relationship by Aggregating Evidence from 1,000 Plus Studies Published between 2015 – 2020" NYU-RAM_ESG-Paper_2021 Rev)
As ESG investing and the consideration of all stakeholders appears to be the path forward, two issues stand out for us: how to evaluate corporations to limit “greenwashing” and how to encourage corporations to do better through Shareholder Advocacy.
The SEC has opened a 90-day public comment period to assess how it should move forward on climate risk disclosure, an initial step to address and measure greenwashing. Please join in this conversation.
Fair Planet Advisors will address Shareholder Advocacy (the process of filing shareholder resolutions to encourage corporations to address Environmental, Social, and Governance issues) as part of CGCAN’s (Columbia Gorge Climate Action Network) April Earth Month celebration at two Zoom events on April 7th at 7pm and April 10th at noon.
US SIF’s report found that US sustainable investing grew 42 percent, from $12 trillion in 2018 to $17 trillion in 2020. The top three issues for money managers and their institutional investor clients were climate change/carbon emissions, sustainable natural resources/agriculture and board issues.
Fair Planet Advisors are proud members of the US SIF Foundation
Michelina A. Roth
David M. Roth, BFATM Financial Planner (he/him/his) O:509.398.8428 | C: 541-705-7918 www.FairPlanetAdvisors.com
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