When we reward environmentally and socially conscious institutions with investment capital, our stake in their success is greater than that of traditional investors. We expect these investments not only to generate financial returns, but also to advance the higher environmental and social standards they represent. In our experience, institutions that are not run in a responsible way are less likely to succeed in either goal. For this reason, we prioritize transparency, good governance, and community involvement when evaluating potential investments.
One key factor we look for when evaluating stock purchases is an annual corporate social responsibility (CSR) report. While many smaller companies and some mid-caps may be resource constrained in annual CSR reporting, our expectation is that all large and many well-run mid-cap companies will put out an annual CSR report.
We seek other disclosures as well from institutions we invest in. Regular, voluntary reporting on everything from carbon emissions to employee diversity not only give us a window into how an institution stacks up against environmental and social measures; they signal that the institution expects their performance on these measures to be evaluated over time. This sets up a virtuous cycle between the institution, its investors and the communities in which it operates.
Good governance, likewise, is key to positive corporate impact. For instance, when board members are re-elected annually, shareholders have the opportunity to vote out leadership that is not responsive to current issues and trends. Conversely, classified boards with deeply entrenched directors run the risk not just of stagnating growth, but of regressive environmental and social outcomes. Institutions that use best practices in board and executive leadership also tend to bring more diverse perspectives to the table, which can further augment business success and positive impact.
We also put a premium on corporate involvement in the community. For instance, we may look for significant corporate giving to reputable, well-run charitable institutions or causes. In many cases, companies become directly involved in local causes through their own foundations or community service projects. In these cases we do our best to verify the impact the company is having, and include it in our overall evaluation of corporate responsibility.
Finally, we monitor any prospective investment for legal disputes, leadership scandals, shareholder lawsuits, fines or other controversies that might reveal issues with shortsighted management, generally staying away from investments with these negative signals.
Our approach is to analyze a prospective stock purchase as if we were going to buy the entire company, before buying any part of the company. Both our values and our financial goals dictate that this analysis begins with corporate responsibility, ensuring that our clients’ investments reflect as much as possible the tenets of transparency, good governance, and community involvement that we believe underpin good management and long-term institutional success.
For more information on how Prentiss Smith & Company seeks strong corporate responsibility in our approach to investment, please contact us.