ESG IN THE NEWS
Will US Asset Managers Follow Europe With Investing? According to a recent PwC survey, over two-thirds of European asset managers are considering halting non-ESG product launches. Distributors also plan to cease distribution of non-ESG products within the next two years. The PwC survey included 3,354 respondents and suggested that ESG assets could grow from 37% of mutual fund assets to 56% by 2025. The halting of non-ESG product launches is expected to be a challenging trend for asset managers that have a hybrid approach to ESG and conventional investment products. The development of global ESG standards is also expected to push larger asset managers to align products with ESG.
ESG funds are outperforming in a tough market environment. A recent article by Bloomberg found that ESG funds are outperforming benchmark indexes year to date. All the ESG fund categories – Europe-focused, US-focused, and global – posted negative returns but saw declines less than the benchmark indexes. The data supports the view that ESG funds should perform in line with conventional investment products. Despite the positive short-term trends, the ESG category is still somewhat challenged based on 5-year averages. While market gyrations are affecting ESG inflows, the longer term trend driving growth of sustainable investing remains intact.
VALUES IN ACTION
Earth: Hormel Foods is a leader in regenerative agriculture. Hormel Foods (HRL) looks to support farmers that use regenerative agriculture practices. The company is the lead sponsor of a 50,000 acre pilot project in Minnesota. Led by The Nature Conservancy, the pilot project will focus on advances in soil health, improving air and water quality, and sequestering greenhouse gasses. Hormel is also rolling out more sustainable products. The company’s Applegate brand is one of the leading organic and natural meat brands. In recent years, Applegate launched The New Food Collective – a new brand that uses pasture-raised meats and small-batch production methods. HRL meets Seeds’ rules framework due to the company’s strong environmental and social governance performance.
People: Google agrees to settle gender discrimination suit. In June, Google (GOOGL) agreed to settle a class-action suit (Ellis v Google LLC) alleging gender discrimination. The lawsuit first emerged in 2017 when three women complained the company underpays female workers and locks women into lower career tracks. The suit covers 15,500 women employed by Google in California since 2013. Google will pay $118 million to settle the suit without admitting to any wrongdoing. For the next three years, Google will also allow third-party experts to assess ways to improve its pay equity process. GOOGL does not meet Seeds’ rules framework due to the company’s above-threshold scores in human capital management, business ethics, and data privacy.
Corporate Integrity: Nestle working to eliminate slavery from supply chain. Last year, Nestle (NSRGY) admitted it discovered modern slavery in its Thailand seafood supply chains where it sources seafood for its Fancy Feast cat food brand. Nestle’s efforts to self-police its supply chain is viewed as a game changer and should make a positive impact as other companies will look to follow suit. At the same time, Nestle recently had a lawsuit dismissed by the US District Court for using child slavery in cocoa farming in the Ivory Coast. The judge found that the plaintiffs failed to show a “traceable connection” between the defendant companies and specific cocoa plantations. Nestle is expected to take further actions to improve its cocoa supply chain transparency. NSRGY meets Seeds’ rules framework due to the company’s mitigating risks related to corporate integrity.
SEEDS SPOTLIGHT
Walt Disney Company – A Leader in Diversity & LGBTQ Rights
With a $175 billion market capitalization, Disney (DIS) has strong programs focused around diversity & inclusion and the environment. The company has a diverse employee base, with 46% of employees identifying as people of color and 50% women employees. The majority of board directors (7 of 11) represent gender, racial, and ethnic diversity. Importantly, the company focuses on diverse talent in its film and TV content. From an environmental perspective, Disney’s focus is to reduce emissions and waste. The company is installing solar arrays at some of its theme parks. In addition, Disney has programs to reduce plastic packaging and divert waste from landfills. Disney has been in the news recently for its opposition to Florida’s “Don’t Say Gay” bill and covering travel costs for employees traveling out-of-state for abortions. DIS stock is down 40% year-to-date despite strong revenue and segment operating profit growth. The stock appears to be impacted by short term valuation multiple compression and concerns over higher losses in the company’s direct-to-consumer business.
ADVISOR PERSPECTIVES
Advisors can win by being more proactive on personal values. FlexShares (Northern Trust) recently surveyed more than 500 high net worth investors about various investing issues, including what role financial advisors are playing to educate clients or recommend values-based investment options. The survey included investors with at least $100,000 of investable assets or income of $100,000 or more that work with a financial advisor. The bottom line: Advisors are missing an opportunity and are not keeping up with growing client interest in ESG or sustainable investing.
Key takeaways:
1. ESG interest is across the board. The majority of people (65%) were somewhat or more interested in sustainable investing. Of people interested in ESG, 73% want to align portfolios with their values and 48% saw ESG as a good way to capture growth by investing in sustainable companies. One-third of respondents said ESG is the future of investing and planned to increase sustainable portfolio allocations within the next three years.
2. Retail investors are not being educated by their advisors on ESG. Only 1 in 3 people said they fully understood ESG. Almost 70% of people learned about ESG by doing their own research. Very few people named their financial advisor as a source of ESG information, creating a big opportunity for advisors to deepen client relationships by talking about ESG and helping to educate their clients.
3. Advisors are not addressing client needs. Of the people who do not care about ESG, 32% are not interested because they don’t know enough about it; another 22% believe ESG will not provide competitive returns. Importantly, for the respondents who are “somewhat interested” 65% would consider ESG if their advisor can explain how it will enhance portfolio returns or align with their values. For respondents who are “somewhat interested” a surprisingly high 98% of these people said their advisor has not mentioned ESG. Less than half of people with ESG investments said their advisor had made a proactive recommendation.
4. Demand for ESG is still growing. Advisors should do more to look for ways to help meet growing ESG demand. Many advisors do not feel confident about ESG or do not feel they know enough to talk to clients. It is ok for advisors to tell clients they are still learning about ESG. Advisors should be having more sustainable investing conversations with clients and try to understand what clients hope to achieve with their investments.
PLANTED SEEDS
- Seeds was added to the Adhesion Wealth Advisor Solutions platform. making it easier than ever for advisors to access Seeds’ equity investment strategies.
- Seeds announced a partnership with CHIP (Changing How Individuals Prosper) to help the next generation of advisors access the tools and technology they need to support the values-aligned experience investors demand.