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What Are the Core Values of the Companies You Invest In?


By Brittany N. Cox,
Registered Investment Advisor at Nestlerode & Loy Investment Advisors

Do you know the core values and beliefs of the companies you invest in? You may have heard of responsible investing as it becomes more popular for investors. There are a few philosophies about responsible investing, but the most common one is ESG investing. ESG stands for environment, social, and governance. We have been diligently researching and implementing ESG portfolios at Nestlerode and Loy to bring the core values of our clients into their investment portfolio.

The environmental part of ESG requires research into a company’s impact on the Earth, positively and negatively. Some of these topics include climate change policies and plans, greenhouse gas emission goals, carbon footprint, water-related issues and goals, renewable energy usage, recycling habits, and even environmental benefits offered to employees such as cycling to work programs and environmental-based incentives.

The S is for social. This deals with people-related elements of the company’s culture that affect employees, customers and suppliers. You may see companies who fit the social criteria in Fortune’s Best Companies to Work for or Forbes’ Top 100 lists. Some of the social topics analyzed are employee treatment and pay, staff turnover, training and development, safety policies, diversity in hiring and advancement opportunities, mission statements, customer service friendliness and responsiveness, and history of lawsuits, recalls and regulatory penalties.

The governance portion relates to the board of directors of the company and oversight. ESG investors analyze how the company’s management and board run the company and whether the incentives of the company align with the successes of the business. Some of the governance topics for consideration are executive compensation and bonuses, diversity of the board of directors, proxy access and the history the company has with the regulatory bodies that govern it. Many of the details to review a company’s governance can be found in the sustainability reports or proxy information that is issued to shareholders annually. If you are looking into the governance of a company before you buy, you can access the annual proxy statements on the SEC’s website as well.

So, what made ESG investing become so popular? Socially responsible investing actually came to light in the 1970s when investors began to align their portfolios around key social concerns at the time like South Africa and the Vietnam War. Socially concerned investors sought to address women’s equality and civil rights during this period. In June of 1972 a photo of a young girl running toward the camera screaming as her back was burning from the napalm that had been dropped on her village outraged the public. This channeled the outrage to Dow Chemical, the company which manufactured napalm, and spurred many protests of companies that profited from the Vietnam War.

These early protests and change in investment strategies led to the creation of The Forum for Sustainable and Responsible Investment (US SRI) which provides research and reports on sustainable investing. In the 1990s, social indexes began to launch to track ESG-focused companies. More recently, investors are concerned with climate change, fair wages and equal opportunity employment. In the mid-2010s, some funds developed gender lens investing strategies to promote workplace equity and general welfare of women and girls.

Socially responsible and ESG investing are picking up traction for investors who want to do good with their invested money and do well for themselves. According to US SIF’s 2018 Report on Sustainable, Responsible and Impact Investing Trends, total socially responsible assets jumped 38% since 2016 in the U.S. Part of this rise in popularity is the millennial mindset of craving social responsibility in the products they purchase, companies they work for, and even their investment portfolios as they begin to earn income and start saving for retirement. This has been reshaping how many businesses operate in our society. As baby boomers are set to pass on about $30 trillion to their millennial heirs over the next decade, we expect the socially responsible investing trend will only get bigger.

Hopefully, if you had never heard of socially responsible investing before reading this, you now have an idea of what it’s about. If you find yourself intrigued by the idea of socially responsible investments and ESG portfolios to make sure your invested funds are supporting businesses who support the world, you should consider a portfolio review with an advisor that specializes in this area as part of their practice. It can help align your values with your investments and promote those areas you feel strongly about.

Nothing contained in this article should be interpreted as a promise or guarantee of earnings or investment results nor a recommendation for the purchase or sale of any security or sector.