What the heck is this company doing in my ESG fund?
Each month, Andy’s answering a question that he wishes more clients would ask him, addressing timely topics that he thinks are worthy of the spotlight.
What the heck is this company doing in my ESG fund?
There’s a phenomenon that often occurs with ESG funds. You look at the portfolio and out jumps a name that certainly doesn’t feel deserving of the ESG label (at least not to you [opportunity to link to ESG longform article once published]). So, what’s it doing in your fund, rubbing elbows with other brands long known for sustainability and social responsibility?
Before you jump to the conclusion that you’re being duped, it’s important to understand a few things:
1. Sometimes companies really do change.
Wal-Mart comes to mind as a good example. The $430 billion company is a bit taboo in certain circles. The brand has a history of making headlines about anti-union policies, discrimination lawsuits from workers, and reliance on international child labor in Bangladeshi sweatshops. But recently, the megabrand has wooed a number of ESG fund managers.
Despite its reputation, Wal-Mart’s identity appears to be shifting. A large part of its ESG transformation should be credited to activist shareholders, which brings me to my next point.
2. Most companies in an ESG fund are far from perfect. And maybe that’s ok.
All companies have room for improvement. If you look hard enough and dig deep enough, you’re likely to find contradictions between values and practices in most businesses. Ultimately, whether to invest or not is your decision, but first consider an investment strategy that’s growing in popularity. Activists have latched on to the adage: money talks.
When investors get behind an organization that is trying to improve its sustainability practices, that investment speaks volumes. The financial backing encourages the company to continue accelerating its sustainability initiatives. Therefore, by identifying companies with intention and momentum, investors can further their own ESG agenda.
Shades of Grey
To be clear, ESG is far from black and white. There’s a ton of grey when it comes to this stuff, but it’s important to know what you’re getting into. Pay attention, ask good questions, think critically, and then invest with confidence.