The pandemic has changed the way we view many things in community and among them, the emerging powerhouse is our investments. As the capacity of investment in influencing our shared futures is clearer, the opportunities afforded by climate change are heating up as fast as the weather. Transparency among many Investment Funds is still lagging a bit and way too opaque still in many funds and companies, but this is rapidly changing with advances in AI, and honest ESG credentials are getting easier to identify. (ESG is Environmental Social Governance).
Reporting corporate and funds ESG credentials is amping so fast that senior managers and C-suite executives who don't get with the program, will soon be out of the orchestra. Especially if they are the conductor.
Globally, the number of listed ESG funds has surged by a quarter since the year began to more than 2300, representing $2.3 trillion assets. So how can any of us lay(wo)men screen funds or companies for ESG? There are basically 3 positions that investment companies big and small generally take in portfolio analysis.
Janus Henderson Investors are an example of the most common - spelled out in The Australian Financial Review - a negative screening approach to stock selection. Janus Henderson say that good negative screens are important because you have clear standards. The JH strategy has a big focus on tech stocks, which account for about 40 per cent of their portfolio. The fund’s biggest positions include Microsoft, Adobe and Autodesk, a software design company that sits within the fund manager’s sweet spot where decarbonising and digitisation overlap.
Other funds invest in companies that can show progress on sustainability metrics - look to improve scores on sustainability criteria rather than blocking companies. While some critics argue that these fund managers have loaded up on companies that should clearly sit outside ESG portfolios, the ability of big funds with hundreds of millions of dollars - even trillions - to realise change is well documented.
Others like Engine No. 1 believe it's better to be actively involved in order to control and create value. The recent election of three activist directors to Exxon’s Board was a wake up call for board rooms around the world with a clear message that investors are willing to put their money where their mouth is when it comes to giving attention to climate change, environmental sustainability, and social responsibility and their importance to customers, employees, and shareholders.
If you simply start snoozing at the very suggestion of words like finance or financial but are still keen to make the best ESG decision, lean into the companies who are making the effort to be transparent. Companies and funds who are actually telling you where they stand on their environmental and social responsibilities. Not just regurgitating ESG rhetoric. Anyone can cut and paste from the extensive info available online. Take five to read transparency claims to ensure your target fund or investment manager is actually doing something tangible and measurable. If it isn't immediately clear, it's easy to move on to someone who is.
Image: Engine No. 1