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ESG ESG Newsletter published on January 3, 2017

Investors and the 'Fiery Urgency of Now'

From our previous articles, readers are well acquainted with the very compelling investment case for sustainable investing and ESG integration – especially for fixed income, where it helps identify unpriced risks and costs. However, we think it is also important to emphasize how analyzing and accounting for these ESG factors can be a force for positive change and impact. Understanding this potential is critically important now, when a global wave of populism seems to be shifting our world’s focus toward addressing pressing short-term concerns.

With these short-term concerns taking center stage, responsible long-term investors might be led to question their investment thesis. The narrative starts with the rapid societal changes, which affect business, government and civil society and then, in turn, drive the capital markets. This leads to an environment in which investors feel the need to be reactive or risk losing out.

But we believe that investors have a much bigger role in society than they may realize. Through a proactive, long-term-oriented approach, investors have the power to influence the capital markets. This, in turn, affects important decisions made by business, government, and civil society. Through this mechanism, investors can significantly influence society at large toward social and environmental stewardship and long-term value creation.

Indeed, some of the investors with whom we work have taken this proactive approach through their focus on sustainable investments and ESG integration. They want to use their assets and their role in the capital markets to influence business, government and civil society toward a more sustainable world, where our natural environment is healthy, societies are open and inclusive and companies are governed responsibly. These issues matter to them, and they are willing to commit and take clear action.

Over the years, we’ve been honored and delighted to work with clients like these. Their passion, enthusiasm and energy have motivated us to innovate and lead. We and our colleagues across the investment management industry have learned a great deal by working with clients who want to do well by doing good, and whose objective is to align their investments with their values.

We think that in this time of uncertainty, all investors must take into account their own role as stewards of society, with a significant stake in our collective long-term success. More than ever, investors have the knowledge and tools to understand and address the most pressing issues of our time, and simply postponing action can be far too risky – both from the investment as well as the societal perspective.

Simply put, investors have a unique opportunity to be the change makers of the future, and that future is now. A broad and scalable investor commitment to addressing important social and environmental issues has never been timelier or more urgent. By embracing the “fiery urgency of now,” investors have a historic opportunity to make their perspectives heard through the power of their asset allocations. [1]

While this may seem like a tall order, we have confidence that investors are eager to take their sustainable and impact investments to the next level. Presented with mounting evidence of a clear investment case for sustainability, investors are starting to prioritize their commitment to proactive long-term stewardship, recognizing that doing so does not require compromising on investment performance.

In particular, we think there are three key reasons to believe that investors are poised to wield their power and influence in unprecedented ways.

First, the sustainability space has made a great deal of progress in recent years, and no one can better attest to this progress than investors themselves. Through a broad range of investment opportunities across asset classes, individual as well as institutional investors have been able to tap into an unprecedented range of opportunities to affect change through their investments. Whether they decide to allocate their assets to a small impact investment fund that focuses on human rights or a fixed income investment manager such as Breckinridge that offers ESG integration solutions, investors are seeing a tidal wave of viable investment options with tangible results.

Second, investors understand that we live in a world that is dynamic and open. Most large companies operate globally, and their business standards and policies are developed through a careful review of best practices across all markets in which they operate. Investors who target high-quality, Fortune 500 companies are acutely aware of their investments’ global reach and massive scale. As such, they tend to formulate their investment policies based on a global, rather than local, perspective. This global perspective is an important counterpoint to any geopolitical developments that could lead to greater fragmentation and localization.

Third, the next generation of investors is becoming increasingly vocal and engaged. Millennials, in particular, are starting to become important decision makers within their own families, the nonprofit organizations whose assets they manage and other organizations with assets to deploy. Their voice matters because it’s a passionate voice asking for positive impact and change. Whether by pushing for policy amendments within their family offices or sustainable 401K options, millennials are already playing an important role in shaping the sustainable and impact investing space, and they are poised to double down on these commitments moving forward.

We think this is an important moment for all investors. Populist sentiments are pushing governments to set aside critical long-term initiatives and react to more-visible problems of today. Yet long-term challenges remain. Fortunately, investors hold unprecedented power to move markets, business and society to meet those challenges.

There is much work to be done. However, as we begin a new year, rather than being discouraged we are confident and optimistic that investors will accelerate the positive momentum behind sustainable investing and ESG research – and embrace the “fiery urgency of now.”

[1] Quote by Martin Luther King Jr.

 

DISCLAIMER: The material in this document is prepared for our clients and other interested parties and contains the opinions of Breckinridge Capital Advisors. Nothing in this document should be construed or relied upon as legal or financial advice. Any specific securities or portfolio characteristics listed above are for illustrative purposes and example only. They may not reflect actual investments in a client portfolio. All investments involve risk – including loss of principal. An investor should consult with an investment professional before making any investment decisions. Companies mentioned are provided as illustrative examples and do not necessarily represent past, current or future portfolio holdings. This document may contain material directly taken from unaffiliated third party sources, including but not limited to federal and various state & local government documents, official financial reports, academic articles, and other public materials. If third party material is included, it is believed to be accurate, and reliable. However, none of the third party information should be relied upon without independent verification. All information contained in this document is current as of the date(s) indicated, and is subject to change without notice. No assurance can be given that any forward looking statements or estimates will prove accurate or profitable.