ESG investing has experienced rapid growth in popularity. But confusion remains about what ESG truly means. Broadly, the term suggests a joint focus on environmental, social and governance factors within ESG investment strategies. Still, there is no common definition of what constitutes an ESG invesment, and little regulation of asset managers’ claims to offer ESG funds or strategies.
As a result, massive mainstream fund managers use increasingly lavish marketing budgets to rapidly launch ESG investment products. Such products are often automated and based on outside ratings systems. These systems, in turn, frequently give “A” grades to the likes of fossil fuel and fast food companies. Unfortunately, such companies can be found in countless “ESG” portfolios. Even worse, many ESG fund managers regularly vote against shareholder resolutions that promote climate disclosure or racial equity.
At Prentiss Smith & Company, we take a different approach. As early adopters in the socially responsible investment movement of the early 1980s, we have built and refined our sustainable investment practice over 40 years. Today, we still do the hard work of in-house research, activist proxy voting and corporate engagement to deliver true ESG portfolio management.
We rule out investments in the production, marketing, or distribution of fossil fuels, or in mining or agrochemicals. We seek companies with products or goals that can combat climate change, waste, water scarcity or deforestation.
We do not consider investments in defense or weapons, retail gun sales, private prisons, tobacco, gambling, or pornography. We seek out companies with diverse workforces, strong labor practices, and prioritization of human rights in supply chains.
We give preference to companies with diverse executive and board leadership, whose policies and goals demonstrate prioritization of all stakeholders, including employees, customers, shareholders and communities.
We believe the ESG label should be earned, not assumed. At Prentiss Smith & Company, this means doing the hard work of internal ESG research, individually analyzing and voting company proxies, and communicating directly with companies we invest in to push for greater progress on environmental and social issues.
When we initially consider an investment, our financial research and our environmental, social and governance research is fully integrated.
We give strong preference to ESG investments whose progress, goals or products support environmental protection and social change.
We use ongoing dialogue to press companies for better disclosure and progress on ESG issues.
Our exclusions go beyond simple industry screens to include detailed research. For instance, we might rule out a lighting manufacturer or security software firm if a large portion of their revenue is derived from fossil fuel or defense companies.
We conduct in-depth, pre-vote research on all ESG investments we have made on behalf of clients. We vote in favor of board diversity, reasonable executive pay, stronger disclosures, and environmental and social issues that align with our clients’ values.
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