- October 21, 2020
- Posted by: Stratford Team
- Category: Markets
Ashley Landis/Pool Photo via USA TODAY Sports
- ESG investing is gaining steam as investors increasingly want to put their money behind companies who share their values.
- Karina Funk, head of sustainable investing at Brown Advisory, shared with Business Insider four companies she thinks are leading the way.
- Visit Business Insider’s homepage for more stories.
Investors are increasingly taking into account companies’ stances and efforts around issues important to them. Those include the likes of climate change, social justice, fair pay, and more.
Known as Environmental, Social, and Governance (ESG) investing, the movement has given investors the opportunity to put their money behind their values.
And it’s no small phenomenon. Inflows into ESG-framed exchange-traded funds over the last three years have shot up 700%, according to a recent Morgan Stanley client note. For the broader ETF market, inflows have jumped 54%.
Those rates prompted Morgan Stanley to recommend buying shares of some of the largest issuers of ESG ETFs, which will benefit from the increasingly massive inflows in coming years.
But while some investors are choosing diversified products like ETFs, others might choose to put their money into shares of single companies making notable advances in areas they’re passionate about.
For those looking to invest in firms that have credentials when it comes to the social aspect of ESG, we spoke with Karina Funk, the head of sustainable investing at Brown Advisory, which has $64 billion of assets under management.
Funk said Brown Advisory has three dedicated sustainability analysts who work alongside their 26 equity research analysts.
She said the firm views a company’s dedication to ESG issues as a competitive advantage — due to things like higher customer loyalty and talent retention — that makes them a more attractive investment.
“Our fundamental analysts learn so much about a company’s culture and their strategy and their processes, and the forward thinking and innovation that they’re putting in place by talking to the sustainability team,” Funk said. “And sometimes that leads to a differentiating view, I think, for a company’s competitive advantage — and again, that’s why we do it.”
Funk highlighted four companies she thinks have impressed when it comes to the social side of ESG.
4 companies leading the corporate social justice movement
One company Funk said was at the forefront of social justice is apparel firm Nike (NKE), as they’ve taken a consistent and decisive anti-racism stance.
“We think that Nike has become a better company and built a better brand because again and again they have come out very, very quickly and decisively on the correct side of racism,” Funk said. “And the thing is a company like this, it’s not like all of a sudden they pivoted and decided to make this a marketing opportunity. They’ve done this over the years.”
She added that Nike has also made strides internally in terms of gender and minority representation.
“Women represent over a third of Nike’s vice presidents — that number has been increasing over the past years, and at the director level has been increasing. In terms of minority groups, Blacks or African Americans make up over 20% of Nike’s workforce,” she said.
Second, Funk said she has been impressed by efforts from software firm Microsoft (MSFT) on pay, diversity, and how they plan on deploying new technology.
“Given the increased competition among technology companies to attract and retain talent, it’s really imperative for Microsoft to be managing all sorts of employee and worker wellness issues,” Funk said.
She added: “They’ve definitely been a leader in terms of executive and board compensation, and they continue to build on their employee diversity program. And maybe you’ve seen their commitment to not have their facial technology until federal legislation is in place.”
Third, she said coffee chain Starbucks (SBUX) has also long been a leader in the social aspect of ESG.
“They’ve made a tremendous investment in their employees, and they were tested like all of us during this time of COVID,” Funk said. “But they’d already been doing a lot of this hard work, like ethical sourcing in their supply chains that is verified by independent auditors.”
Finally, Funk said online retailer Etsy (ETSY) has been a leader internally and in terms of who their vendors are.
“They’re not just giving statements of support in terms of diversity and inclusion, they’re actually living it. Women represent 50% of the board. Why should we care as investors? Their attention is human capital, and they really have reduced employee turnover and their attrition rate is below the tech industry benchmark,” Funk said.
She added: “They say they want at least 50% of their small- and medium- sized supplier, or vendors, to be owned by women, minorities, or veterans by 2020.”