Making a Social Impact via ESG Investing

By Calvin R. Stamps

Calvin R. Stamps is the founder, managing partner, and portfolio manager of Atlanta-based Bretwood Capital Partners. He is a former member of the Georgia United Methodist Foundation board of trustees and past chair of the Investment Committee. In this article, he explains the benefits of Environmental, Social, and Governance investing.

As corporations and organizations grow and become increasingly intertwined in our everyday lives, the interdependence of economic, social, and environmental issues becomes more apparent in the current age of information. Transparency is now paramount as consumers have become quite savvy and very interested in the corporate practices of the companies they buy from and invest money in. Private businesses, governments, and individual citizens’ actions all affect one another and, in turn, affect the environment.

When large technology companies migrated to Northern California, there was evidence they had a significant negative impact on the cost of living and the quality of life for those communities. Many people were eventually priced out of their communities because those areas began to cater to the new inhabitants who had significantly more income. In this instance, a change in the economic dynamic greatly affected the social and environmental landscape. This happens quite often in many places all over the country, which demonstrates how tightly connected the economy is to social and environmental issues.

There is a need to be proactive in realizing the connection and creating ways for corporations to benefit society and the environment. Can companies grow and make significant profits and do good for others and the environment? According to a new wave of socially responsible initiatives, the answer is yes.

One of the fastest-growing initiatives is Environmental, Social, and Governance (ESG) investing. This strategy seeks to combine business acumen with the ability to create value for the community and world. ESG stands as a benchmark for measuring a company’s sustainability in the areas of environment, social impact, and governance. Environmental criteria measure how well a company actively seeks to cause minimal damage to the planet. Social criteria measure how well the company handles relationships and considers the communities it serves. These relationships can be with consumers, employees, contractors, etc. Finally, governance considers the company’s leadership and how well they are fulfilling obligations to stakeholders.

The benefits of ESG investing have broadened companies’ focus, including more than the bottom line. Companies are now focused on a broader set of stakeholders that includes employees and their families, larger supply chains and even the community. And although ESG investing is concerned with more than just profitability, ESG has proven to be quite profitable.

GUMF is fortunate to be in partnership with Wespath Institutional Investments. Wespath’s priority is a strong financial future for clients and partners. Wespath believes sustainable investment activities strengthen the potential to consistently provide strong, long-term financial returns that achieve stated investment objectives.

The Wespath team takes a comprehensive approach to sustainable investment that considers the impact of ESG factors as they relate to investment management. Wespath also seeks to shape their overall investment program with the future in mind. These efforts are organized through a Sustainable Economy Framework. This framework describes the belief that investors must create and support a sustainable global economy — one that promotes long-term prosperity for all, social cohesion and environmental health. Wespath, in partnership with trusted managers, uses a set of actions — invest, engage and avoid — to ensure that investment activity is proactively contributing to the Sustainable Economy Framework.

Importantly, Wespath invests in companies that demonstrate meaningful social and environmental impact to seek higher returns. The Wespath team actively engages companies and policymakers by urging them to adopt sustainable practices and policies. Finally, Wespath avoids certain investments due to ethical exclusions or because they pose excessive sustainability-related financial risks.

As ESG investing becomes more accessible to the masses, it allows investors to craft a portfolio around what matters to them. For example, suppose one is passionate about pollution, fair labor practices, and employee diversity. In that case, ESG investing is a way to measure the sustainability of these factors to gain a clear understanding of an investment’s financial returns and overall impact. ESG investing can also have a specific target like creating affordable housing. This gives investors the opportunity to invest in a way that prioritizes optimal outcomes for the environment and society. The big picture is investors can no longer be solely driven by economic value. The focus must be on making life better for everyone and the environment.