How to Think About E.S.G. Investing in a Falling Market

Whenever the stock market falls, investors can rethink almost everything.

The current catgut check will take place at some point in the evolution of the investment industry, where assets of so-called ESG funds have increased by 38% over the past year to reach $ 2.7 trillion by the end of March. According to Morningstar Direct.. Experts use climate, diversity, or other data to overlay the rules and screens of all types of investment of choice and are currently building over 6,000 funds worldwide.

Consciousness costs money: I often have money High fees If your investment doesn’t work better than any option you refuse, it can reduce your returns. Also, there is considerable confusion about what the term ESG (short for environment, society, governance) really means.

This could lead to an episode like last month when Elon Musk called the entire industry a “scam” after S & P Global had the enthusiasm to remove Tesla from the ESG index. S & P did this, saidPartly due to racism and other charges of worker abuse.

Meanwhile, the Securities and Exchange Commission is desperate To catch upInvestigate Goldman Sachs and other major banks and ask if any banks are slamming ESG labels on funds that may not be worth the investor’s assets.

To help everyday investors understand this, I relied on two experts who spent a considerable amount of time considering ESG investments.

Initially Amy Domini72, Founder and Chair Domini Impact Investments And we are a pioneer in the ESG field. The second is Rachel Robaschotti43, Founder and Chief Executive Officer Adashina Social CapitalIt describes itself as an “investment and financial activity” company.

This is what they had to say.

Ron Lieber: What is the most accurate definition of ESG today, and how has it changed?

Amy Domini: Before you start, is it a good vocabulary? It was an “ethical investment” when I started, but I lost so many vocabulary battles in my life.

I see it as providing a more robust set of important data points on which investment advisers can make decisions.

And I see it as a fulfillment of fiduciary duty. Assets are not managed for the best benefit of the beneficiaries if they are actually unable to breathe or are too life-threatening at the end of wealth building. So I see it as a means to an end. Its purpose is a planet that is easy to live in and worth living.And I think it’s a strategy that investors clearly acknowledge. It has a role to play in providing these achievements to the world.

Lieber: Rachel, you were familiar with Amy’s money. Have you reached another conclusion?

RACHEL ROBASCIOTTI: We call our work “investing in social justice.” It is a deep integration of four areas: race, gender, economy and climate justice.

Lieber: Defining justice seems awkward these days. On the other hand, some investors do not want to invest in weapons makers. On the other hand, many of them are keen to put more weapons in the hands of Ukrainians.

ROBASCIOTTI: In the world where our investors want to live, the government is responsible for weapons and defense, not a private activity.

Lieber: Wait, so should the government produce weapons?

Domini: Capitalism is good at distributing goods and services widely and cheaply. Weapons should not be distributed widely and cheaply.

Lieber: Scholars have been talking for years about how so-called active investment is a bad idea. It is very difficult to aggressively select a stock that works better than other stocks in the long run. Do ESG investments violate these principles?

ROBASCIOTTI: Successful investment in social justice requires proactively addressing these issues and paying attention when corporate behavior changes to have a substantive and significant impact on the future.

Domini: Take a square. They definitely had a powerful story to empower the owners of small businesses. This is a powerful economic justice theme that can excite you. As they became more and more blockchain companies, their first exciting dissertation became increasingly nonexistent until their name changed.

Lieber: For curious investors, it may be better to play with the word “active” and think of ESG as an activist investment. If someone intends to pay a higher than average fee, or at least a higher fee than a basic index fund charged by a company like you, it’s not just a quiet move of money from a public company, it may not have much of an impact. Another in a way that may not be. Activists put pressure on them. They make a noise.

Domini: He pointed out that there are 150 companies in Japan, two genders, and the board does not reflect that fact.Japan doesn’t have a strong shareholder resolution opportunity, but that doesn’t mean you can’t have it Some activism..

Lieber: We are in the bear market right now. It is often when people try to reduce the cost of their investment portfolio. There is a long history of manual labor in the investment industry about the fact that your money is not cheap. Will you lose in such market conditions?

Domini: You now have an ESG product Vanguard, Fidelity, TIAA.. They are all doing it because it adds value to the investment decision-making process. It won’t disappear. Here to stay.

ROBASCIOTTI: Historically, women, people of color, especially blacks like me, have not been allowed into the industry. And now that we are starting to emerge, we are under this huge price pressure. “Please lower the price!”

Organize, mobilize, educate and organize datasets for other investors-all of which requires people. You must be able to invest in them.

So I really wonder if anyone is really making an impact at a low price. A cheap ESG can hit a data wall over and over again and stop. And what we have done is break down the data barrier.

Lieber: OK, but do you always trust the data you get from the company itself, that is, the raw numbers and the way the company selectively counts?

ROBASCIOTTI: Companies use less of their own data. The data independently collected by third parties verifying it in public company practice is what we really rely on.

Lieber: Elon Musk will challenge the value that ESG adds. How do you try to convince him within 100 words?

ROBASCIOTTI (Laughter): This is what I say: The reason you’re confused is because you’re the CEO of a single issue, it’s not the way to the future. The roads of the future are people and planets, and a broken society cannot make anything, including electric cars.

Domini: He chased my industry instead of chasing the index that excluded him. The whole industry did not abandon him.

Lieber: Private investors are facing ESG choice scores. Goldman Sachs and others want familiar names to be important. What is the correct framing question that an individual should ask when funding a purchase?

ROBASCIOTTI: There are actually three. At first, what is your problem? For us, these are race, gender, economy and climate. Because these are places where capitalism draws unsustainable value.

So how do you measure it? And beyond the shadow of doubt, the most important question is who decides what is important. Go to the most affected people and ask what is important. Because they are closest to the problem and often farthest from power. And that’s information that investors don’t currently have.

Lieber: What is the least obvious example of this third example?

ROBASCIOTTI: When we went Poor people’s campaign When asked what to focus on, they called us One fair wageThis is working to eliminate the minimum wage of tip workers.

Created the wholeInvestors for livable wagesHad a campaign and a group Investor statement This is worth more than $ 5 trillion in investor money through signatories, indicating that all public companies have fallen below the minimum wage.

Lieber: All this feels like a daunting task for investors. Where are the interactive tools that can exclude only one of the many funds as my best choice?

Domini: I think it’s better to take a step than not to take a step. I’m not completely obsessed with who does the better analysis, or who does the analysis that matches my analysis. I’ve seen so-called rigorous portfolios that have stocks that I can’t put into my portfolio.

Lieber: So the paralysis of this analysis is my problem — isn’t this an industry problem?

Domini: If you want to start with something, I like women-owned companies!

ROBASCIOTTI: However 1.4% All assets of US-based companies are managed by companies owned by women or people of color. So you can narrow your universe right there.

The reason it is important is that by doing it the way we have always done, it has given us the world we have now. If we have another world, that is, if we invest in making more of what we really want, we need to choose different people who are not yet at the table.