At WMS Partners, we strive to balance a deep commitment to social responsibility while seeking solid investment returns for our clients.
As we work with clients to develop our own ESG framework, we want to share some of what we’ve discovered.
WHAT IS ESG INVESTING?
What Is ESG?
Environmental, Social, and Governance (ESG) are three central criteria in assessing the sustainability of investments.
Environmental: emissions reduction or carbon offsets, improving energy efficiency, discovery and use of more efficient materials, recycling and reduction of waste and effluents, water efficiency in agriculture and industry, sustainable land use and protection of vital ecosystems, conservation of biodiversity.
Social: diversity and equal opportunity, payment of a living wage, employee health and wellness, rigorous product safety standards, zero tolerance for child and forced labor.
Governance: management transparency, tax compliance in all jurisdictions, decreased emphasis on lobbying and political rent-seeking, “fair trade” practices, disavowal of anticompetitive behavior such as predatory pricing.
Why does WMS take such an interest in ESG?
Whether or not you are motivated by social issues in your portfolio, ESG embodies a set of vital considerations when selecting investments. It is a framework that helps to improve resilience, reduce risk, and uncover opportunities.
ESG is not about excluding whole industries, but rather finding the best-managed assets regardless of industry. While investing always implies tradeoffs, ESG criteria improve information transparency and provide a better framework for assessing the risks and rewards of every investment decision.
WMS is deeply committed to serving our community and works on behalf of our clients to foster impact at home and across the globe. Our core values include honesty, integrity, philanthropy, and diversity. We also have an ESG committee devoted to investigating and adopting best practices within the investment industry. Why should our investment process not reflect the values we uphold when managing our organization? We believe ESG is one of the tools investors need when constructing portfolios built for long-term success.
ESG and Investment Returns
Paying attention to environmental sustainability and social impact is not something that can be left to charities and NGOs. It is a vital part of managing risk and seeking best-in-class investment performance. Research has consistently shown that companies and investment strategies which perform well along ESG factors also generate better financial returns.
ESG landscape is rapidly changing
The field is becoming more quantitative and substantive. Reporting standards are improving. But hype proliferates where investors aren't paying close attention.
The world is awash in ESG products. Much of this amounts to shallow promises, cursory stock screens, and faddish marketing. While ESG investing can yield excellent results, investors must look underneath the label. ESG represents an evolving paradigm of investment research and corporate practice. To be effective, it must be embedded in the investment process and strategic decision making. It is never easy.
Beware "greenwashing" and ask challenging questions.