Independent Thinking^®

Responsible Investing and Future Growth

Many investors strive to make mindful decisions about how their portfolios are invested. These decisions can include the degree of risk, the investment time horizon and the appropriate asset class mix. Increasingly, investors also want to profitably express their values in their investment mandates.
 
Socially responsible investing has been around for decades, becoming popular in the 1970s among investors determined to exclude certain stocks or broader sectors from their portfolio, such as tobacco producers or companies involved in South African apartheid. Over time it expanded to include environmental, social and governance, or ESG, factors. Today, many investors focus simply on responsible investing, or the integration of ESG factors into all investment processes and decision making.
 
Investors may want to own companies that can attract talent, foster innovation and proactively manage their supply chains, but are also responding to climate change and have effective health and safety polices to protect against accidents as well as a corporate culture that builds trust.
 
This developing interest has encouraged companies to increase their own focus on ESG factors, creating something of a virtuous circle. Companies that are able to attract responsible investors,as well as like-minded consumers, become more profitable and are able to spend more R&D on energy efficiency, and so on.
 
Beyond the supply/demand equation, embedding responsible investing into capital markets makes good business sense, and can lead to more sustainable markets and better outcomes for societies. Back in the industrial era, pollution was unregulated, labor was just a cost factor, and a combination of scale and scope was the dominant strategy. Corporations today must adapt to an environment that favors smarter, cheaper and healthier products and services.
 
For example, A.O. Smith, a company that is held in many core equity portfolios at Evercore Wealth Management, was founded 144 years ago in Milwaukee to manufacture specialty hardware and, later, steel core frames and glass-lined water heaters. As A.O. Smith expanded its business globally, it improved its manufacturing practices to reduce or minimize environmental impact, introduced a high-efficiency water heater and, more recently, is focusing on water treatment technology to meet the growing need for fresh, clean water around the world.
 
Over 150 companies globally have made a commitment to “100% renewable” electricity,¹ including several companies that we currently hold in core equity portfolios: Adobe, Apple, Google, Microsoft, and Nike. While this public commitment builds strong brand awareness with consumers and environmental advocates, it also allows for greater control over energy costs, increased competitiveness, and the ability to proactively meet emission regulatory goals. All of these can have positive effects on both the top line (increased revenues) and the corporate bottom line (lower costs).
 
Companies are also recognizing that responsible investing and strong governance practices are vital to creating and preserving value for all shareholders, as well as helping with employee retention, brand reputation, and competitive positioning. New challenges, such as environmental risk, privacy and data security, demographic shifts and regulatory pressures, are also driving change.
 
Within our investment portfolios, we are able to source solutions for clients who want to include responsible investing factors in their investment mandates, including equity and municipal bond portfolios that can screen based on ESG factors, firms with minority or women founders, and illiquid investment opportunities such as WAVE Equity, which invests in companies positioned to take advantage of recent significant improvements in industrial processes around clean energy, food, waste and water.
 
Responsible investing is not a trend but rather a way for investors and companies to position themselves for future growth. Cost efficiencies, more innovative and competitive products, risk management and the ability to attract better human capital can all accrue to the bottom line.
 
Stephanie Hackett is a Managing Director and Portfolio Manager at Evercore Wealth Management. She can be contacted at [email protected].

¹ RE100 is a collaborative global initiative by The Climate Group in partnership with CDP. http://there100.org/re100.