One of the more subtle effects of covid-19 and the turmoil of 2020 is that it transformed how many of us – including global leaders – look at money and wealth. The convergence of four massive crises in 2020 caused almost everyone to re-evaluate everything we thought we knew and every aspect of our lives: the pandemic’s catastrophic and random strikes across socio-economic levels; the full-blown economic crisis it caused; the murder of George Floyd and the massive global racial justice protests it unleashed; and the dramatic increase in the effects of climate change, from more intense weather events like devastating storms to wildfires.
Priorities shifted. Permanently.
So did investing. As a result, values-based ESG investing – for Environment, Social and Governance-focused – took center stage and outperformed other investment strategies. Previously considered a niche investing strategy – “socially-responsible investing” or “sustainable investing” – ESG is now the star, and women are a key part of why.
Saying “2020 marked a breakout year for ESG investment performance,“ the venerable financial ratings and analytics firm Moody’s wrote on February 23, 2021 that, “Environmental, social and governance (ESG) themed investments have become one of the best performing investment categories in recent years, paving the way for continued growth of this strategy.” A new US SIF: The Forum for Sustainable and Responsible Investment report found that $17.1 trillion were in responsibly invested assets in the U.S. at the start of 2020, up 42% from just two years prior.
“The winds of investing in the U.S. are starting to shift and women, it turns out, are a driving force behind the change.” MarketWatch reported recently.
A recent RBC Wealth Management study of their U.S.-based clients found that “female clients are almost twice as likely as their male counterparts to say it is important that the companies they invest in integrate ESG factors into their policies and decisions….[and are] more likely to prioritize ESG impact when considering what companies or funds to invest in, while male clients are much more likely to prioritize financial performance.”
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The new Moody’s report emphasizes that ESG investing gives both financial performance and impact. As Moody’s Vice President Stephen Tu wrote in the report that, “The experience of 2020 will help remove investors’ worry that ESG investing means giving up returns, which has been a widespread barrier to growth in ESG products.”
What is ESG investing?
ESG investing incorporates both the traditional financial metrics and environmental, social and governance factors. Environmental factors include energy and water use, carbon emissions, recycling, and waste output, and post-covid, also includes the workplace environment. Social factors include how you treat your people, customers, suppliers, community, and all stakeholders. It includes pay and advancement equity, as well as gender, age, and ethnic diversity. Governance factors include leaders with integrity, competence, experience and honesty, and having a diverse board of directors. It also includes a commitment to transparency and being open to new and divergent ideas.
The tools to help you see your money and investments through an ESG lens have expanded exponentially, as more and more asset managers and investors have demanded it. “I think there’s more that’s happened in probably the past two years in the sustainable and ESG investing space than probably has in the prior 20 years,” long-time wealth advisor Kathleen McQuiggan told me on my podcast recently. She’s an advisor at Artemis Advisors and formerly headed Global Women’s Investing and the Global Women’s Index Fund at Pax World Investments.
Companies increasingly understand the need for disclosure, and its benefits
Though the reflex to control what they disclose is alive and well, companies are being increasingly pressured and incentivized to disclose more, especially the numbers that don’t make them look good.
Whereas before they did not take it seriously, McQuiggan sees a shift: “Now they have teams of corporate responsibility directors, they’re sharing this information and data…and companies are realizing that as more investors are asking more questions, and as investors begin to prioritize climate change [and] diversity, that the leaders will be rewarded for some of the things they’re doing…and realize they can differentiate themselves.”
But the devil is still in the details, and the footnotes. So, if you invest, do so with your eyes wide open.
You can listen to my full interview with Kathleen McQuiggan on my podcast, Green Connections Radio, here and read my other Forbes pieces on her ESG investing advice and career advice.