How Generational and Societal Change is Influencing Companies and The Markets
ESG: what does that acronym stand for? Those three
letters stand for “Environmental, Social, and Governance”
and signify an investment that has particular merit to
investors of all ages.
A recent Morgan Stanley Bank survey found that almost
90% of millennials would prefer to have investments
that suit their values. With young adults, ESG investing
could become more and more of an element in investing
strategies.
You may recall how the phrase “socially responsible
investing” became part of the stock market vocabulary
a generation ago. Socially responsible investing (SRI)
was often about not investing in certain companies –
businesses whose products or services seemed distasteful
to this or that investor. ESG investing focuses more on
corporate behavior. Is a corporation managing natural
resources sustainably? Does it treat workers well? Is its
culture inclusive and diverse?
Corporate values count, perhaps now more than ever.
Today, you have companies pledging to commit to
environmentally sustainable practices and leadership
initiatives designed to include women and members of
minority groups in the C-Suite.
Some corporations now include ESG metrics in financial
and annual reports. This is more than a nod to investors;
it represents a trend in corporate communication and
behavior. One notable ESG metric is CEO pay. Some S&P
500 firms have gotten bad publicity over the last decade for
the degree of executive compensation their leaders receive,
and investors are watching.
Philosophically, ESG investing asks two questions. An ESG
investing proponent’s answers may differ significantly from
those of an investor uncompelled by the ESG approach.
One, should social responsibility matter more than a
company’s financials when you are considering an
investment? Two, can positive environmental and social
news about a corporation influence its stock’s value more
than its earnings and guidance?
If you want to explore the world of ESG investing, consult
your financial professional for the insight and information
that can help you identify your choices.
