Arizona-based Footprint sells biodegradable packaging to food giants such as Conagra. New York software firm First Access facilitates microfinance loans in the developing world. And virtual marketplace First Harvest sells surplus produce to reduce food waste. These young companies strive to improve sustainability and benefit the social good while generating competitive returns. They, like many others, are on the leading edge of impact investing, which looks at not just profits, but also how they are generated. The focus to do better for society is transforming companies and their collective investors in what appears to be Capitalism 2.0.
Companies are being told by investors and customers, to step it up regarding ESG considerations. The call to action is open to widely different interpretations. Some niche firms only invest in companies with a social mission. Larger investment firms may only consider environmental, social and governance (ESG) principles in selecting their targets. Some route socially conscious clients to funds focused on ESG considerations, such as the ‘Demand Green’ portfolio for comprehensive and globally diverse investments.
Meanwhile, on the corporate side, large public companies publish detailed impact reports that track greenhouse gas emissions, workforce diversity, and philanthropy. Their efforts are being tracked by third-party research firms that rate companies on their corporate social responsibility, so that investors may compare competitors in a sector such as banking or manufacturing. This approach is a pivotal change from the 80s and 90s, when the stock market rewarded companies that laid-off employees and outsourced production. Michael Douglas’ depiction of corporate raider Gordon Gekko in “Wall Street” even glamorized greed as being good.
Civic-minded millennials have definitely changed the conversation, pointing to the adverse climate effects and cruelty associated with animal agriculture and factory pollution, along with the unhealthy ingredients in processed food and the lack of diversity in corporate management. At Demand Wealth, we are also inspired! As a result, we have developed the ‘Demand Cruelty Free’ portfolio that features a cruelty free, globally green and diverse investment strategy custom-tailored to your socially conscious values.
But there’s plenty of room to be skeptical about the intention of large companies. The SEC last year enacted a rule limiting the influence of smaller investors. To propose a resolution during a company’s annual proxy period, a shareholder must own $25,000 in stock for one year. The previous rule required ownership of only $2,000 in stock for a year. The rule change was promoted by big companies and the Business Roundtable, which in 2019 famously announced that companies should look beyond shareholder primacy to consider all stakeholders, including employees, customers, suppliers and communities.
On the investor side, there’s concern that money managers who signed on to the U.N. principles are riding the ESG wave without much sweat. A 2020 study co-authored by Aaron Yoon, a professor at the Northwestern’s Kellogg School of Management, found that funds that signed on to the U.N. principles became no more ESG-friendly in the following quarters than they’d been previously. One problem is that there is no standard definition for ESG. It’s up for grabs as to what is good ESG and what is better.
At Demand Wealth we share your concerns regarding protecting the environment and animals, too! As a result, we have developed the ‘Demand Green’ and ‘Demand Cruelty Free’ portfolios that screen out environmentally damaging companies and those that are cruel to animals. Schedule a video conference with one of our advisors today to learn more about how we can help you invest in a way that aligns with your beliefs and achieves your financial goals.
This report is a publication of Demand Wealth. Information presented is believed to be factual and up-to-date, but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the author as of the date of publication and are subject to change.