![]() ![]() Personal experience in very small startups has left me sensitive to these concerns. Of course, not every company is a potential Enron, though many are ethically challenged or may simply feel that minor transgressions, like white lies, are relatively harmless. Little transparency, ethically dubious practices, shareholder/employee abuse (the company froze Enron stock in the 401(k) plan, but not for the executives), and more. But when companies are poorly run, when they hide what they are doing, when they disregard input from stakeholders – shareholders but also workers and customers and neighbors – they risk harm not only to others but ultimately to their own business.Įnron is a textbook example of a company with poor governance. ![]() Scrubbers and all, this is not a clean process. Well-run companies can do a lot of damage – think about an efficient, legally run coal plant. Perhaps because it isn’t as intuitive as environmental and social issues, governance merits a bit more exposition. One could even make an argument for it being a governance issue, as it relates to employment and how a company manages its workers. I would have classified it as a social concern along with other workplace issues like equal opportunity, parental leave, and adequate healthcare. Vanguard considers workplace safety an environmental issue (see graphic above). In the end, the particular classification isn’t that important. Governance is concerned directly with how well a company is run and how it treats those in its ecosystem (employees, clients, vendors) as opposed to a company’s effects on the environment and on people generally. Basically, clean air, clean water, clean land, and whatever it takes to make that happen.Īt first glance, governance seems to be a bit different from environmental and social issues. People tend to have a pretty good sense of what environmental issues are, or at least the ones that are important to them. For social issues, it includes “diversity and inclusion, human rights, specific faith-based issues, the health and safety of employees, customers, and consumers locally and/or globally, or whether the company invests in its community, as well as how such issues are addressed by other companies in a supply chain.” Here is a graphic from Vanguard showing some areas that Vanguard feels come under these headings. Why does one want to invest in sustainable companies? It could be for ethical or religious reasons, because one wants to make a difference, or one may simply look at ESG investing as a path to better profits.Įnvironmental, Social, and Governance focused investing can mean different things to different people. Hopefully, both parts will give readers something to think about. Why, for example, did S&P drop Tesla from its ESG list? In October, we will take a look at how some rating services and fund families employ these approaches. It touches on whether ESG can make sense from an investment (money-making) perspective. Our August essay presents an overview of ESG investing, where it comes from, and the different approaches employed. This seems like an appropriate time to look at ESG investing in general and ESG funds in particular. But then 2022 happened: many tech-heavy green funds cratered along with the market, fossil fuel producers soared, and ESG funds saw their first outflows in years. Sensing money to be made, firms quickly promoted (or cobbled together) about 80 new ESG funds in 2021. The growth has been spurred by record-breaking fund inflows amid concerns about climate change and other societal issues. While definitions of environmental, social and governance investing vary - it can mean putting your money in anything from a wind-energy company to a Silicon Valley tech giant - assets are set to balloon to $50 trillion by 2025 from about $35 trillion, according to estimates from Bloomberg Intelligence. Bloomberg’s Saijel Kishan reports () that ![]() One of the strategies that was very much in vogue last year was putting your money where your beliefs are that is, investing in funds and ETFs that espoused some form of sustainable / responsible / green discipline. Many people are working to make the world a better place, and many more seem stunned and appalled. It doesn’t matter where you stand politically both parties are rollicking in the dark. Runways in London are melting, doctors and pharmacies are denying basic legal reproductive care to women because of fear of prosecution, and corporations are hiding more and more dark money contributions. There are days when the world seems unnecessarily out of whack. ![]()
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