If you’re not already familiar with the acronym ESG, expect to hear it a lot in coming years.
ESG stands for Environmental, Social and Governance. Amid a planet choking from environmental destruction and abuse, social injustices, lack of transparency and corruption, it’s a measuring stick against which to rate companies that are doing good to the planet and its people, or doing harm.
John Berry, CEO of the ethical KiwiSaver Provider CareSaver, in his July webinar series (watch here), explains in simple terms what ESG really means when it comes to investing and how you apply these principles to create “value” from “values“.
Good investment returns don’t come at the expense of ethics. In fact, today the opposite is true.
Recent performance data comparing ethically structured funds against their peer group averages put ethical funds ahead. (See Radio NZ coverage here)
In CareSaver’s case, by a significant margin. Their signature Growth Fund, for the 6 months to 30th June 2020, was 4% ahead of the average Growth Fund average. See full performance data here.
Berry says all KiwiSaver members, regardless of their account balances, should feel empowered to make a difference through a conscious investing approach that takes into account ESG considerations.
“It doesn’t matter whether you have $1,000 or $100,000 in KiwiSaver, you’re part of that $60 billion, and as a country we should be thinking how to we want to allocate that money and what kind of corporate behaviour do we want to encourage or discourage.”
Pre-Covid-19, climate change was and remains today a deep concern for humanity.
“No part of the earth’s surface is safe from the activities of man.” ~ Economist Magazine
CareSaver applies the highest standards in the finance industry, to evaluate the environmental policies and track records of companies it invests in. It is no less rigorous when it comes to social and governance considerations.
“As individuals, we want to help and have a positive impact on the world. What we’re focussed on through CareSaver, is the way we invest has an impact on the world,” said Berry.
Where less discerning competitors may use the term socially responsible, Berry said ethical investing is a term that CareSaver can proudly and legitimately lay claim to.
Given the rapid growth of ethical investment funds and the weight of consideration placed on ESG factors, KiwiSaver providers are clamoring for credibility in this space.
Berry said it’s all the more reason for investors to understand what they’re invested in and to question whether their fund aligns to their values.
When it comes to ethical purity, CareSaver is more or less unrivaled.
Mindful Money, a non-profit website that compares KiwiSaver providers and funds along ESG principles, places CareSaver in the top spot. The fact that CareSaver gives 20% of its fees to charity, tends to be an attractive feature for ethical investors.
As well as excluding certain sectors, (fossil fuel, tobacco, gambling, adult entertainment to name a few), CareSaver actively chooses the companies it wants to invest in based along ESG principles.
CareSaver’s approach is two-pronged, says Berry.
- It’s about value: What are your principles?
- It’s about optimising returns
“You’re not going to change the world just by avoiding things,” he said.
“We think the most important approach is to take a positive lens. We go to the next step and focus on ESG, Environmental, Social and Governance Investing.”
Research in Europe found that environmental considerations rate as the number one priority for investors, and for fund managers. In New Zealand, similar surveys found that Governance topped the agenda, especially in considerations of seeking higher returns for investors.
“Why do we care about governance? If you think about it at a country level, we care deeply about governance because if you have a country that is lacking in governance you end up with bribery and corruption. That’s not just true of countries, but also true of companies and businesses. We greatly value transparency and openness in the way that businesses operate and a lot of that is around Governance and the structures that they put in place.”
Berry uses Facebook as an example. CareSaver does not hold stock in the global media giant. He said the fact that founder Mark Zuckerberg holds less than 20% of its stock but has more than 60% of its voting rights, is patently unhealthy.
“What we’re talking about is a global media company that one person essentially has control of. From our perspective, we thought there would be an issue arising from the governance structure of a global media company being invested around one person. And there have been issues, including Cambridge Analytica, fake news, live streaming issues and data privacy. For us, it’s a governance issue.”
While Facebook stock is only down 1% this year, fossil fuel companies are perhaps more compelling examples of why ethical investing pays.
Like other such companies, British Petroleum has seen its stock value plummet by 38% from the start of the year. The transportation paralysis brought by Covid-19 is one reason, but even before the Pandemic hit, oil stocks were tanking.
Berry said it’s a sign of the times and yet another reason why ethical investing is the way of the future.
His three takeaways:
- The way we invest impacts our world.
- Exclusions are not enough.
- ESG considerations lower risk and improve returns.
Introduce a friend to CareSaver, if they mention you in the form and both your balances are above $5,000, then you’ll get $50 to the charity of your choice and they’ll get $50 to the charity of their choice as well. And best of all, with CareSaver you’ll both experience our “profit with principles” approach.