Most of us invest for fiscal returns: the bottom line. A growing number of the world’s population are expanding their goals to include social and environmental returns as well: the double bottom line.
Activist investors first flexed their collective muscle to help end apartheid in South Africa by refusing to invest in companies that did business there until state sponsored segregation was ended. Investors slept better at night knowing that they were not profiting from companies complicit in such discrimination and they also made a material contribution to the movement for reform. Since then, investors have influenced numerous causes (including but not limited to):
Investors are supporting their missions (be it personal or organizational) by making financial contributions supported by their investment returns but have expanded their influence to actually effect their missions just by the process of achieving those returns. We at Ethos Logos Investments have even seen foundations increase donations because donors value this double-bottom line investing.
Think about it: a donor giving to a foundation to help starving children naturally wants to know that their money isn’t being invested in companies that utilize child labor or focus on advertising sugary snacks! What a big statement the foundation can make when they proclaim that donations increase their voice at the table as they actively work to encourage companies held in their portfolio to improve delivery of micronutrients in healthy snacks, improve access to clean water for all, or release patents for pediatric medications for distribution to poor communities! Now THAT’S alignment of mission.
As the trend becomes a movement, there is a compelling case being made that adding Environmental, Social and Corporate Governance (ESG) factors into a portfolio may also improve performance. The myth has been busted: an investor does not need to sacrifice their conscience to be financially prudent. Yet, the double bottom line doesn’t mean the same thing to everyone. That’s where Ethos Logos Investments comes in.
Our mission is to facilitate the integration of your mission into your investment portfolio. We seek to educate and build awareness among organizations and individuals that this alignment is possible and productive.
As responsible investing becomes more mainstream, products, funds, and managers are incorporating these ESG principles into their models. Some are doing so in response to market demand, others are doing so because they realize the effectiveness of integrating ESG factors into their analytics. Since we at Ethos Logos Investments focus exclusively on this market, we keep our finger on the pulse of what is happening, what is available, what is working, what is cutting edge.
We help our clients navigate the options available and choose solutions that are right for them, both as a prudent investor as well as ethically aligned (Just because a fund is labeled “Socially Responsible” doesn’t mean you the investor agrees with it!). This frequently means using a variety of third-party money managers or mutual funds. Ethos Logos Investments gives our clients one single point of contact, one relationship, one advisor, yet access to an entire universe of investment solutions.
Because we are an advisory model, your success is our success. Contrary to the consultant model that charges a flat fee no matter what your portfolio does, we charge a percentage based upon your assets under management. For our investors, this model means the more their assets grow, the more we get paid, and vice versa. We sit on the same side of the table as you, interviewing managers and performing due diligence. It is in our best interest to deliver the best products and the most competitive fees. We have fiduciary duty to our clients and have structured our compensation to support that obligation.
Finally, our promise to our clients is excellent client service with a special focus on long-term, meaningful relationships. As a mission focused advisory firm, we have flexibility in our servicing standards that large for-profit investment firms cannot match.
There are many labels used to illustrate the nuances between responsible investment strategies: Socially Responsible Investing, Screening, Impact Investing, ESG, Green Investing, Active Ownership, Thematic Investing, Philanthropic Investing, Community Investing, and others. While we could talk about this all day, here’s a primer glossary on how Ethos Logos Investments looks at the universe.
Excluding companies from a portfolio to insulate an investor from being complicit with activities to which they are opposed.
Screening a company makes a statement that an investor disagrees with a company’s business practices. When you buy stock you are, in fact, an owner of that company. If you would not be okay selling widgets, buying widgets, or having your donors know that you profit from widgets, then you should not own a company that sells widgets. However, there are always exceptions.
Using ownership of stock to influence the company’s business practices.
Here’s one of those exceptions. When a company is screened, it makes a statement but also ends the conversation. A company is not interested in what you have to say unless you are an owner (i.e. own stock) or perhaps a debtor (i.e. own bonds). A strategy of attending shareholder meetings, holding meetings with a company’s management, sending letters, filing shareholder resolutions, and voting proxy statements has proven successful at effecting positive change.
Positive screening. Selecting companies to hold in a portfolio, at least in part, because of their positive business practices or social/environmental influence.
Positive and/or negative screens focused around a central theme that’s most important to an investor (ex. Water sustainability or human trafficking).
Possibly a subset of Thematic Investing, Community Investing is when you positively and/or negatively screen a portfolio to influence a particular geographic area.
This is one of the more commonly used phrases, emerging as a bit of a “catch-all.” It is generally how investment firms refer to the factors they use to select investments when social, ethical, environmental, and moral themes are a concern. There are mounting academic studies that suggest including ESG factors into an investment strategy decreases risk and improves returns over time. Several firms are creating ESG ratings and indices as these are becoming mainstream aspects of qualitative analysis.
Investing exclusively for social and/or environmental returns. This is no longer the double bottom line, but the alternative bottom line. There is no concern for investment returns.
According to The Forum for Sustainable and Responsible Investment (US SIF), as of October 31st 2018, responsible investing strategies totaled $12 trillion, which equates to 25% of all dollars under professional management and a 38% increase since 2016.1 Also notable is that $8 trillion of that total comes from the most sophisticated investors: institutions.
The Journal of Sustainable Finance & Investment, published a study that aggregated evidence from more than 2000 empirical studies and shows a positive correlation between ESG factors and corporate financial performance.2
According to a Bank of America Merrill Lynch report published in December 2016, incorporating ESG factors could’ve helped investors avoid 90% of bankruptcies. It also showed that ESG rankings are a good forecaster of future volatility: the higher the ESG ranking, the lower the volatility. That report opens with a particularly powerful statement:
“It’s not just for tree-huggers - incorporating environmental, social and corporate governance (ESG) considerations into one’s framework is critical. First, these metrics have been strong indicators of future volatility, earnings risk, price declines and bankruptcies. Second, trends in the US investment landscape suggests that trillions of dollars could be allocated to ESG-oriented equity investments, to stocks that are attractive on these attributes, over the next few decades– inflows equivalent to the size of the S&P 500 today!”3
1. US SIF. “SRI Basics” https://www.ussif.org/sribasics (Accessed January 25, 2018)
2. Friede, Busch, Bassen. “ESG and financial performance.” Tandfonline.com
http://www.tandfonline.com/doi/pdf/10.1080/20430795.2015.1118917 (Accessed January 25, 2018)
3. Bank of America Corporation. “Equity Strategy Focus Point. ESG: good companies can make good stocks” https://www.bofaml.com/content/dam/boamlimages/documents/articles/ID17_0028/equitystrategyfocuspoint_esg.pdf (accessed January 25, 2018)