Twenty years ago ESG investing was largely for Church Foundations and die-hard tree huggers – it was a rather crude tool and was largely all about removing nasties from funds. No fags, no porn, no weapons. This was called ‘ethical’ investing. But today’s is a more complex, nuanced story and it’s as much about backing firms which are good long-term prospects (i.e. will still be around in 30 years and thriving) as it is about blacklisting the bad. The moral judgements have made way for more of the less subjective future-facing judgements.
Interestingly, for the sceptics, evidence is mounting that this style of investing is likely to do better – over the last 5 years there is evidence that global ESG funds have outperformed their traditional alternatives.
Two letters explain some of this. U and N. The UN’s 17 Sustainable Development Goals were set in 2015. (I did need to Google ‘SDGs’ at the conference because fund manager conferences are Acronym City and this one sounded like something Lord Byron picked up after a night in Constantinople). By way of example, the 17 SDGs include no poverty, reduced inequalities, affordable clean energy and climate action.
To work towards these goals, countries throw blistering amounts of money at this. Trillions of dollars. So of course the private sector sniffs opportunity and sticks its snout in. Regulation, legislation and plain old commerce all make a very clear business case for investing in ventures and firms which work towards these 17 goals.
Back to the conference and the CEO of the Soros Economic Development Fund, Sean Hinton, gave the assembled fund managers a beautifully disguised sugar-coated kick, in that brilliantly lovely way that clever diplomatic people do. He was talking about shareholder activism (voting at shareholder meetings) as a critical conduit for change and obviously thinks that the collective responses can be underwhelming.
In the US, institutional investors (pension funds and other large collectives) own 78% of the stock market. A mere three companies – BlackRock, State Street and Vanguard – own an eye-watering 25% between them. Three firms own one-quarter of corporate America – that is MAD. If they jointly had a corporate strop, imagine the ripples they could make. Money is power and as shareholders they get a say in how companies are run and how directors are rewarded.
2019’s Exxon Mobil Board meeting was cited as a case where the Big Boys failed to act. Many investors believe that Exxon continues to lag behind its industry peers on climate change and also fails to engage properly with shareholders. So they consequently voted against the re-election of the entire board. According to Mr Hinton, Fidelity, Invesco and Vanguard voted in favour of the entire board and BlackRock only voted against one. Hmmm.
I suspect in 2020 we will see more work being done to track and publish how the people we employ to look after our money are voting. What they are doing on our behalf? If voting records are sought out, made clearer and more accessible, then it becomes a competitive advantage, it changes how we ‘buy’ our investments, and which fund managers we engage with, and frankly that will move things quicker than me remembering to take my ‘keep cup’ to work every Monday.
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Have a great weekend,