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Keep Calm and ESG

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The news cycle has been heavy lately. COVID cases are rising, climate predictions are dire amid daily reports of fires, floods, and powerful storms, and the crisis in Afghanistan is leaving the rights and safety of millions hanging in the balance.

The good news is ordinary people are staying informed and looking for ways to make a difference. Google says searches for “how to help Afghan refugees” and “what can I do against climate change” were trending around the world this month.

As an investor, you can be a part of the solution as well. Your capital can back firms making a positive impact, reward those with good ESG behavior and give you a vote in shareholder campaigns or proxy proposals meant to bring about change. Remember, socially responsible investing makes financial sense, too. Companies with long-term views that factor in the well-being of all stakeholders are likely to be more successful and resilient when things go sideways. With the term “black swan” entering more vocabularies, this is a big moment for executives to display risk preparedness and farsightedness.  

However, investors need to stay vigilant about greenwashing and flowery press releases, especially since ESG ratings and disclosure rules are still fuzzy. ICYMI, Deutsche Bank may have just landed in hot water for overstating sustainability metrics on some investments. On the second anniversary of the stakeholder capitalism pledge signed by the influential Business Roundtable group, the jury is still out on whether they followed through. Harvard law professors looking for revisions in corporate documents concluded the entire exercise was mostly for show, but nonprofit JUST Capital argued that on average the signatories are actually treating stakeholders better than the rest. As we said, fuzzy.

Keep calm and carry on using screeners and other useful tools FWIW will be sharing. Clearer standards are on the way.


Illustration of "G" letter surrounded by green vines

G is for governance

In discussions about ESG, governance usually takes a back seat to the more topical and pressing environmental and social impact themes. We also talk about it less because most of what goes on in hallowed halls is a tightly kept secret, and we learn about missteps and misdeeds in explosive scandals and leaks (or tweets, as is the case with Elon Musk). As we enter a new and confusing stage of the pandemic, good governance will be critical to steer through uncharted waters.

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