Where ESG-Minded Investors Should Put Their Money

What should ESG-minded allocators invest in? That is the question before investors who care about environmental, social and governance issues—amid a political fracas that now surrounds the ESG concept, especially in the U.S.

CIO’s webinar Thursday on ESG investing covered those concerns thoroughly. Although not a listing of stock tips, the program weighed the pros and cons facing investors who include ESG factors in their investment decisionmaking, coming during a summer of harsh weather and a political climate that is similarly disagreeable toward the risk-measurement framework.

Hosted by Amy Resnick, executive editor of CIO, the webinar featured: Robert Lampl, sector head for industrials, financials and real estate at ISS ESG, a unit of Institutional Shareholders Services, which also owns CIO; Jeff Mindlin, CIO of Arizona State University Enterprise Partners, which runs the school’s endowment and other investment pools; and Leola Ross, deputy CIO and ESG head at the Seattle City Employees’ Retirement System.

Mindlin pointed out that climate problems are affecting business everywhere, in light of extreme weather patterns worldwide. “Insurers are fleeing Florida,” owing to greater hurricane risks, Mindlin said, which shows the need for “ESG now to be integrated into business.”

There are ample sound ESG-friendly investments available, Ross argued. Some are not so obvious. She cited Deere & Co., parent of farm equipment maker John Deere, which advises farmers where best to plant their crops using computerized modeling. Data centers are another good destination for ESG-minded investors, she suggested.

With many Republican-led states restricting ESG-oriented spending and investing by state-related organizations, Mindlin said he “didn’t want to politicize” climate-oriented investing. He advised allocators to engage with companies that emit carbon, instead of divesting their stock—as that engagement would be more effective in driving change.

The webinar took place against a backdrop of a higher level of ESG proxy resolutions this year, according to ISS data: 340 environmental and social resolutions and 224 governance ones have been on U.S. company ballots to date in 2023. This marks a record, although the number of shareholders backing them has dropped. At the same time, more anti-ESG resolutions have emerged.

Lampl noted in the webinar that oil and gas companies “are aware of the transition” they must make from fossil fuel to renewables and that those businesses are channeling capital into greener alternatives. They do not “want to find themselves in a Nokia moment, where they just disappear” because they are outmoded, he said. The Finnish company once dominated the cell phone market but failed to keep up with rivals.

A lot of the panelists’ discussion centered on the utility of assessing investments through an ESG lens: It helps investors avoid risks from environmental and other disasters, which are not visible in P&L statements. Mindlin spoke of an investor he knew who stayed out of energy investments, a tactic that bore fruit when Russia invaded Ukraine, and oil and gas prices became very volatile. “He just crushed it,” Mindlin said, meaning that he scored good returns.

One good development is that multinational corporations now are paying attention to ESG disclosure protocols from regulators around the world, Lampl declared. This is necessary to keep up with the competition, he said. If companies do not disclose, there’s “a suspicion they are hiding something.”

The panelists pointed to a change in how ESG is discussed, owing to the term becoming politically charged. Corporate executives and investment folks “used to put a slide in the deck” about their ESG efforts, Mindlin recounted. “Then they removed ,it so not to get swept up in politics.”

Nonetheless, Ross added, “climate change does post a risk” to the planet that should not be ignored.