How the degree of preference for impact informs investment decisions.
Many of us still remember the 2008-2009 financial crisis and the subsequent Great Recession. This was a turbulent time for Wall Street as well as for Main Street. Perhaps we know someone who lost their job during the crisis, someone who lost their life savings, or both.
There was a sense that corporations and financial institutions, alongside regulators, needed to act with greater responsibility and that they could have done more to protect the economy and all its participants. This triggered a wholesale review of the role of business and investors in society, and many of the world’s premier business leaders and experts decided to lend their voices to the effort. The post-crisis years were arguably some of the most dynamic in exploring new ideas pertaining to how companies and investors ought to interact with the world around them.
Happily, this effort led to some truly transformational outcomes. The world’s leading companies started to develop sophisticated strategies enabling them to “do well by doing good,” with innovative concepts such as creating shared value and corporate sustainability. At the same time, a range of new ventures was launched with the same goal, leading to the rise of social entrepreneurship and the B Corp movement.
Over time, authentic commitment to addressing important environmental, social and governance issues has become an important differentiator for sophisticated, forward-thinking companies such as Unilever and Whole Foods. It has also led to notable changes within the financial services industry, where leading banks such as JP Morgan are looking to create societal impact at scale. Through careful strategic analysis, these companies have come to believe that a failure to advance important issues facing our world would jeopardize not only their competitive position but also their license to operate, and this realization further strengthened their resolve.
On the other end, thoughtful investors started to become increasingly committed to addressing important social and environmental issues through their investments. They began to systematically integrate environmental, social and governance (ESG) factors into the investment process and to seek out impact investments that intentionally aim to achieve financial returns as well as positive social and environmental impact that can be actively measured.
Indeed, 2010-2016 was a time of reflection, innovation and forward movement for many private sector participants. One of the most notable milestones was the 2015 launch of the United Nations Sustainable Development Goals, which aim to address some of the world’s most-pressing problems. The SDG launch was marked by an unprecedented level of private sector involvement.
Fast forward to today. We are in a world that is being rapidly disrupted, but in which some of the most-important corporate decisions are still being informed by the progress made and norms established over the recent years. In particular, it has been remarkable to observe corporate leadership in addressing many important issues that continue to arise. Top CEOs are stepping forward to do what may have been less common back in 2008-2009 – consider the interests of all their stakeholders.
Our ESG research points to a broader secular trend toward corporate responsibility that informs recent corporate actions. The world’s leading companies have invested unprecedented resources to address important environmental, social and governance issues, and this commitment has resulted in significant cultural changes in the corporate world. Therefore, disregarding important global issues is simply out of step with currently accepted business norms.
In today’s uncertain world, corporate sustainability is a critical driver of positive change. This corporate “true north” promises to create a new type of relationship between corporations and their stakeholders. By establishing a positive role in society through continuing and disciplined commitment to their material ESG issues, companies can create value for their shareholders, bondholders, employees and all of their stakeholders.
This is the moment for all companies across a broad range of industries to take a cue from their forward-thinking peers and embrace the new paradigm, in which all stakeholders matter. Importantly, investors play a critical role in this transition because their ability to recognize and advocate for the strategic significance of sustainability can drive home the reality that there is no viable alternative – not today and especially not over the long term.
For our part, as investors in the world’s leading companies, we at Breckinridge are particularly attuned to the transformation underway, and we are eager to contribute to the collective effort toward creating a more stable, sustainable world.
DISCLAIMER: The opinions and views expressed are those of Breckinridge Capital Advisors, Inc. They are current as of the date(s) indicated but are subject to change without notice. Any estimates, targets, and projections are based on Breckinridge research, analysis and assumptions. No assurances can be made that any such estimate, target or projection will be accurate; actual results may differ substantially.
Nothing contained herein should be construed or relied upon as financial, legal or tax advice. All investments involve risks, including the loss of principal. An investor should consult with their financial professional before making any investment decisions.
Some information has been taken directly from unaffiliated third party sources. Breckinridge believes such information is reliable, but does not guarantee its accuracy or completeness.
Any specific securities mentioned are for illustrative and example only. They do not necessarily represent actual investments in any client portfolio.