Displaying items by tag: SRI

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Across the best MBA programs like Wharton, Duke, and Harvard business school there is a surging interest in impact investing and climate finance. In the last nine years there has been a 240% increase in enrolment in electives related to social issues at HBS. Money is flowing into ESG and that is boosting a demand for jobs and salaries, and that is peaking the interest of the rising graduates. 19% of graduate students leaving Stanford Business School are taking jobs in and around social impact. Overall this will shape business for years to come because of the exposure to ESG as it is worked in throughout the curriculum regardless if graduates end up taking final positions related to sustainability.

FINSUM: ESG is still a minority interest among rising MBA grads, and that's because salaries may be on the rise but they still trail overall averages.

Job growth had been performing below expectations in recent months, but the Recent BLS Report showed the Economy has bounced back with 531,000 jobs. Perhaps even more significant is the gender breakdown of these new positions: 57% of the new jobs were created for women. While the report is a positive, it is not all good news. Many of the new jobs created were for retail and hospitality, which have lower wages and don’t offer as many benefits. Still, wages are on the rise in this sector of the economy given the domestic labor glut. Finally, it will take time to restore the labor market to its pre-pandemic numbers. In fact, at this rate it will take another 8 months to recoup the job losses.

FINSUM: Minimizing labor disparities is a sign the economy is healing, but it's also a means for better economic growth in and of itself.

ESG has been for 2021 what the dotcom expansion was for the year 2000, but maybe that growth will fall off like tech did in the early 2000s. This month was startling for the ESG investors as debt issuance took a dive. Green bond issuance slumped 28% and other categories like social bond sales and sustainability loan offerings were down 54% and 49% (respectively) month-to-month. Annually ESG is still in a wonderful place in comparison to last year as the cumulative bonds are over $500 billion ahead when compared through the first 10 months. This volume is concerning still as investors had higher projections for 2021 than are currently being met.

FINSUM: ESG is nowhere near over but ‘faux’ green bonds could be catching enough attention to slow the ESG trend.

Responsible investors have long believed that investing with embedded consideration of environmental, social, and governance (ESG) factors is a compelling approach to identify investment opportunities: well-run, thoughtfully managed companies built for the long term, ready to foster societal transition and dynamically adapt to our rapidly changing world. This belief is simple enough to justify: identification, application, and integration of ESG risks and opportunities can provide investors with additional, independently derived insight into a company’s management quality, strategic positioning, operational efficiency, and potential risk exposure.

The broader investment community has caught on. In 2020, ESG funds saw greater inflows than in any year prior, a nearly 140% increase over 2019 and nearly ten times greater than in 2018. Corporations have responded to this shift, with a record number of companies appointing their first Chief Sustainability Officer (CSO) in 2020, a year that saw more CSOs recruited than in the previous three years combined. 

SUSTAINABLE FUND ANNUAL FLOWS AND ASSETS

Source: Morningstar. Data as of 12/31/2020
Includes Sustainable Funds as defined in Sustainable Funds U.S. Landscape Report, Feb. 2020.
Includes funds that have been liquidated, does not include funds of funds.

The transformative potential in the hands of ESG investors has grown by orders of magnitude. This exponential growth has brought an increasingly crowded field with a variety of approaches to ESG, creating ambiguity in the marketplace over what it means to be intentional as an impact investor. An authentic, intentional, and holistic approach relies on aligning active ownership strategies (e.g., shareholder resolutions, public policy participation, voting proxies) with stated investment goals, an ESG-led research process, and impact-oriented themes and targets.

Dispelling a Persistent Myth

There has been a widespread misconception among investors that ESG factors are non-financial. This is not entirely accurate. ESG factors can instead represent unpriced externalities and unmanaged risks that are uncorrelated with traditional financial metrics. By incorporating ESG factors into security analysis, investors can identify a host of material issues core to business fundamentals, enhancing the ability to recognize patterns that are not already priced in.

In addition to risk-mitigation, businesses that proactively accelerate the adoption of positive ESG practices and the development of solutions-oriented products have a unique opportunity to exceed revenue expectations and thus be rewarded with higher ratings over time. These companies may see an improving competitive position versus peers, while those that are on the wrong side of this transition may see changes in their cost of capital and an accompanying deterioration in their competitive position. Investing in the transition to a more just, sustainable world gives investors access to solutions-fixed revenue streams while altering the trajectory on climate action and racial equity among a host of other vital issues.

Identifying strong business fundamentals and ESG process leadership — underpinned by the belief that businesses with forward-thinking managements are higher quality — combined with insights gained from global, proactive, and sustained shareowner engagement can together form a positive feedback loop for better investment decision-making. Managers with the knowledge and experience to employ this holistic approach understand the need to incorporate the product dimension into impact and support companies whose products and services are solutions for societal, environmental, and human rights problems.

ACTIVE OWNERSHIP STRATEGIES

The Way Forward

We are at an inflection point where ESG is transitioning from niche to mainstream. True to the original spirit of the movement, we should hope not to build a new investment establishment in the image of the old, but instead to forge a dynamic, holistic, evolved approach, generating positive impacts by holding companies accountable as stewards of people and planet. As investors, holding ourselves to the same high standards we demand of portfolio companies will go a long way toward making these impacts sustainable.

We hope that you will join us on the journey.

By Liz Su, CFA and Kevin Hart, CIMA of Boston Common Asset Management

Past performance is not a guarantee of future results. Investing involves risk including possible loss of principal.

This does not constitute investment advice or an investment recommendation.

This represents the views and opinions of Boston Common Asset Management.  It does not constitute investment advice or an offer or solicitation to purchase or sell any security and is subject to change at any time due to changes in market or economic conditions. The comments should not be construed as a recommendation of individual holdings or market sectors, but as an illustration of broader themes.

Applying ESG investment criteria to investments may result in the selection or exclusion of securities of certain issuers for reasons other than performance, and may underperform investments that do not utilize an ESG investment strategy. The application of an ESG strategy may affect an investment's exposure to certain companies, sectors, regions, countries or types of investments, which could negatively impact performance depending on whether such investments are in or out of favor. Applying ESG criteria to investment decisions is qualitative and subjective by nature, and there is no guarantee that the criteria utilized or any judgment exercised by an investment manager will reflect the beliefs or values of any particular investor.​

AMG Funds LLC (“AMG Funds”) is a wholly-owned subsidiary and U.S. retail distribution arm of AMG. AMG Funds offers long-term investment strategies through a unique platform that includes a family of funds and separate accounts managed by a selection of AMG's investment managers.

N.B. This is sponsored content and not FINSUM editorial.