McCartney Wealth Management is excited to add to its traditional investment offerings a new program, Investing for a Better TomorrowSM. The new investment portfolios will use funds specifically designed to address environmental sustainability, social and governance (“ESG”) matters in our same low cost academic approach to investing. We will use similar asset class allocations as our regular portfolios, which we will continue to offer to clients.
In January Larry Fink, CEO of the largest asset management firm BlackRock, wrote a letter to corporate CEOs in the United States outlining his expectation that public companies start accounting for their effect on society.
“society increasingly is turning to the private sector and asking that companies respond to broader societal challenges. Indeed, the public expectations of your company have never been greater. Society is demanding that companies, both public and private, serve a social purpose. To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society.…Furthermore, the board is essential to helping a company articulate and pursue its purpose, as well as respond to the questions that are increasingly important to its investors, its consumers, and the communities in which it operates. In the current environment, these stakeholders are demanding that companies exercise leadership on a broader range of issues. And they are right to: a company’s ability to manage environmental, social, and governance matters demonstrates the leadership and good governance that is so essential to sustainable growth, which is why we are increasingly integrating these issues into our investment process.”
Companies are under increased pressure to use ESG criteria in an impactful way to benefit both investors and society as a whole. By encouraging asset allocation using ESG criteria, investors can have a positive impact on society while achieving market based returns.
Why should an investor consider investing in an impactful manner?
- It has a positive impact on society
- It has a positive impact on the environment
- It improves corporate governance at publicly traded companies
- It aligns the values of corporations with shareholders and stakeholders
- It is enhances long-term returns and reduces risk for both companies and investor
The links below show the downside of not paying attention to such factors.
Exxon Duped Public Over Climate Research – Harvard
Why Boards Need More Women – Harvard Business Review
Wells Fargo Shares Tank After Sanctions by Fed
DOJ Lawsuit Against Tobacco Industry
Accounting Scandals, Including Enron
McCartney Wealth Management is initially rolling out an automated approach using low cost ETFs. The link is here to get started – ESG Robo Investing. This approach is live and ready to use now. (We will mainly accept Missouri and California residents due to our state registration until we get our SEC filing completed and approved.)
Although one would expect some tracking error between these portfolios and conventional portfolios, what is interesting to note is that numerous academic studies have found no statistical difference between ESG portfolios and conventional portfolios, and some studies have actually found out performance of ESG portfolios over conventional portfolios.
Below is a summary of some of the more recent academic studies discussing ESG performance.
- “We find that firms with good performance on material sustainability issues significantly outperform firms with poor performance on these issues, suggesting that investments in sustainability issues are shareholder-value enhancing.” Corporate Sustainability: First Evidence on Materiality, Khan, Serafeim and Yoon, Harvard Working Paper 15-073, Harvard Business School 2015.
- “The study combines the findings of about 2200 individual studies. Hence, this study is by far the most exhaustive overview of academic research on this topic and allows for generalizable statements. The results show that the business case for ESG investing is empirically very well founded. Roughly 90% of studies find a nonnegative ESG – CFP [corporate financial performance] relation. More importantly, the large majority of studies reports positive findings. We highlight that the positive ESG impact on CFP appears stable over time.” ESG and financial performance: aggregated evidence from more than 2000 empirical studies, Friede, Busch and Bassen, Journal of Sustainable Finance & Investment, November 2015.
- “Conventional finance wisdom indicates that less risk leads to lower returns. Against this belief, new mathematical analysis, introduced in this article, demonstrates that companies that incorporate Environmental, Social and Fair Governance (ESG) factors show lower volatility in their stock performances than their peers in the same industry, that each industry is affected differently by ESG factors, and that ESG companies generate higher returns.” ESG factors and risk-adjusted performance: a new quantitative model, Kumar, Smith, Badis, Wang, Ambrosy and Tavares, Journal of Sustainable Finance & Investment, October 2016.
- “We find evidence on the fact that European and North American stock portfolios with high E, S, and G scores show a significant financial outperformance in the long run-with the exception of the combination of governance and Europe. This holds true if the stocks are compared with benchmark portfolios exhibiting similar characteristics. Investing in the top stocks and shorting those with low E, S, G scores implies even higher abnormal returns for the investor.” Where and when does it pay to be good? A global long-term analysis of ESG investing, Dorfleitner, Utz and Wimmer, 26th Australasian Finance and Banking Conference 2013, October 2013.
- “Using 20 years’ data of 1992-2011, we find evidence that environmentally responsible company outperforms, in the 4th to 7th year after the screening year. An equal-weighted environmentally responsible portfolio earned an annual four-factor alpha of 4.06 % in the 4th year, 3.00 % above industry benchmarks, and 3.87 % above characteristic benchmarks.” Corporate Environmental Responsibility and Equity Prices, Cai and He, Journal of Business Ethics, December 2014.
- “Taken as a whole, our results show that markets positively value most aspects of CSR, and do so because in the long run, measured across most dimensions, high CSR firms have a higher expected growth rate in their abnormal earnings.” Corporate Social Responsibility and Firm Value: Disaggregating the Effects on Cash Flow,Risk and Growth, Gregory, Tharyan and Whittaker, Journal of Business Ethics, November 2014.
Please contact us if you are interested in learning more about Investing for a Better TomorrowSM.
314.246.0595
McCartney Wealth Management LLC is a state registered investment adviser registered in Missouri and California and located in Saint Louis, Missouri. The firm may only transact business with residents of Missouri and California and residents of other states where otherwise legally permitted subject to exemption or exclusion from registration requirements.
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