Trends with Benefits #28: ESG Performance with Mark Sloss
29 September 2020
A trend decades in the making
In 2020, ESG’s time may have finally come. Investing based on environmental-, societal- and governance-oriented principles is a trend influencing fund development, government regulations and attracting investor fund flows. It can be a complicated topic, particularly if you’re trying to find the best approach. The good thing for investors is that there are a myriad of approaches to ESG investing. The bad thing for investors is that there are a myriad of approaches to ESG.
ESG is a topic I love to hate. Not because of the intent of it, but more because many of the methodologies now in play try to distill seemingly subjective decisions into a “check-the-box” type of exercise. In some cases, good and responsible companies may be left out of a portfolio or, in other cases potential exclusions were missed. This summer, fashion company Boohoo made headlines when news broke that despite being given a high grade by many ESG ratings services, the company paid workers in its supply chain less than minimum wage and subjected them to unsafe working conditions.
No methodology is perfect, whether trying to identify good ESG companies or good large-cap quality growth companies. Ultimately it comes down to understanding the methodology, its biases, and whether or not it aligns with your intent. I actually love the idea that investors are increasingly requiring that their investment dollars align with their values and if doing good doesn't materially impact returns, why shouldn't everyone do it?
In 2020, ESG strategies generally have performed relatively well and record flows into ESG funds have followed. Performance, as I discuss with Mark, is also a complicated or at least nuanced topic. We discuss SRI (Socially Responsible Investing) the precursor to ESG and the long held perception of performance concessions with such values-based investing. I also discuss with him the relative importance of E, S and G in the total equation of things and ongoing efforts to standardize ESG metrics.
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