A holistic investment process examines the big picture beyond the rigid criteria of some ESG scoring techniques.
I’ve had two distinct careers in my professional life. Starting out as a civil engineer, working on large-scale commercial projects across the country, I realized pretty quickly that this couldn’t hold my interest. With some boredom setting in, I went back to school and got a Master’s degree in Environmental Engineering. Contaminated groundwater flow was a problem I had encountered several times before. Now, it was my specialty, and I spent the next 10 years remediating Superfund sites across America. I was responsible for designing the process and overseeing the cleanup of several environmental disasters. The E in ESG is something I have deep experience in.
As a kid growing up in a textile mill town, I remember the excitement around the arrival of a major chain retailer known for low prices. Several years later, the excitement was gone and so was main street. I witnessed at close range my hometown being nearly wiped off the map by corporations that acted in a less than socially conscious way. ESG is something we get. If you are polluting a river, destroying small towns, or treating employees or shareholders poorly, we will know it, and it will carry significant importance in how we choose our investments and how we engage with management.
How are stakeholders treated?
Much of what we see today on the topic of ESG looks like “check the box activism,” being reduced to a set of numbers or rankings that can make a tobacco company or an oil company look good on ESG measures. That is what is known as greenwashing, and we believe its use to be disingenuous. How a company performs on ESG has to do with how it interacts with and respects its stakeholders. If your products foster addiction among your customers or harm their health in other ways, you are not a good business on ESG metrics, in our view. Moreover, ESG factors involve the same degree of judgement that most other investment decisions do. ESG rankings overlook a great deal. For instance, we think having a dual share class is fine, when it is combined with an overall governance structure that treats its stakeholders the right way. Some companies that don’t have dual share classes, in our experience, treat outside shareholders poorly, yet they might score higher simply because of their corporate structure. We repeat, ESG has everything to do with how a company interacts with and respects its stakeholders. ESG is integral to good investing
Evaluating ESG is not a separate process – it is inherent in what good investing is all about. The best companies can win without the environment, the communities they serve, and their shareholders having to lose. Those are the investments we look for. We implement ESG principles in an independent-minded, forward-looking, and fully integrated way. These are foundational issues for any comprehensive business analysis. To believe otherwise leaves us wondering about how comprehensive the rest of the analysis is. Our decades of experience show us that our approach is, and has been, the right way to approach these issues, and the world will move towards us as time unfolds.
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Invesco Distributors, Inc. is the US distributor for Invesco Ltd.’s retail products and collective trust funds, and is an indirect, wholly owned subsidiary of Invesco Ltd.
This does not constitute a recommendation of any investment strategy or product for a particular investor. Investors should consult a financial advisor/financial consultant before making any investment decisions. The opinions expressed are those of the author as of July 2, 2020, are based on current market conditions and are subject to change without notice. These opinions may differ from those of other Invesco investment professionals.
Invoking the full spirit of ESG investing by Invesco US
Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.