Sustainability Matters: A Take-Action Moment

Activate your money for sustainability and impact

Jon Hale 16 June, 2020 | 1:18AM

Diverse group of hands on log

When it comes to systemic racism, change has to come from many directions. If you are fortunate enough to be an investor, do not ignore the broader social impact your investments can make. In the past you may have been told to check your social conscience at the door when it comes to investing. Just maximize returns, don't worry about what may be underneath your portfolio's hood, and enjoy the proceeds. Then, if you wish, you can reactivate your social conscience and contribute charitably to the social causes you deem worthy.

That argument was bolstered by dire warnings that your investments might "underperform" if you tried to invest with a consideration of conscience. Those warnings turned out not to be true, but they were enough to dissuade investors during a time when not all that many were interested. Today, it's harder for financial advisors to give the wave-off to the growing number of investors who want to invest for sustainability and impact.

For one thing, using environmental, social, and governance insights helps portfolio managers make better decisions, which clearly can help returns. For another, ESG information helps investors understand how well companies treat their stakeholders and the environment. These ESG assessments, in turn, form the basis of engagements between shareholders and companies that can result in changes in corporate policy and behavior. Proxy voting and shareholder resolutions provide additional paths for shareholder influence.

My colleague Jackie Cook reports that a record number of social and environmental shareholder resolutions have attracted majority shareholder support this year with still a month of public company annual meetings to go.

ESG's social score on the up
A growing number of broadly diversified sustainable investment equity funds--nearly 200--are built more broadly around ESG assessments that typically include the consideration of corporate diversity programs, discrimination policies, board diversity, freedom of association policies, and other relevant areas like supplier standards and worker health and safety. Many of these funds have performed well over the past five years, including so far during this year's recession.

Most of them have active engagement and proxy voting programs, and going forward, you can expect these funds to engage with companies about how they are addressing systemic racism. Calvert Research and Management, for example, says it will ask companies to provide information on the racial diversity of their employees, disclose pay equity across race and gender, and publicly take a stand on what they are doing to combat racism in the criminal justice and education systems.

If you want your asset managers to be engaging with companies about their response to the pandemic and about how they are addressing racial injustice, invest in a sustainable equity fund.

Money makes a difference in many ways
What about the rest of your portfolio? Investing in bonds can have even more impact. Not only can bond fund portfolio managers make more robust risk evaluations of corporate bonds using ESG assessments, they can focus on bonds' use of proceeds to evaluate their social or environmental impact. In fact, some bond funds are making impact their central thematic focus by focusing on green bonds that address climate-related problems, or on social bonds that support affordable housing and economic development in underserved communities.

And then there is cash. Consider banking at one of the many credit unions throughout the country that devote a portion of profits to community organization. To find a credit union, the Canadian Credit Union Association has a tool to help you look up a branch near you.

We are in a take-action moment right now. In taking action, don't overlook your financial resources. Through the use of sustainable equity funds, impact bond funds, and community banking, you can activate your entire investment portfolio and your bank account. Doing so gives you the ability to use your money in impactful ways as you save it and grow it, and then again when you donate it.

About Author

Jon Hale

Jon Hale  Jon Hale, Ph.D., CFA, is the head of sustainability research for Morningstar.

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