ESG – environmental, social, governance – has gone from being all the rage in investing to being three of the most-polarized letters in America.
ESG-mandated assets are projected to make up more than half of all professionally managed assets globally – $80 trillion worth – by 2024, according to Deloitte. But this recent boom in popularity, coinciding with a global energy crisis, has been met with an onslaught of critics – many concerned that ESG-dedicated capital will only further a certain value system at the expense of others.
For this special-edition Delivering Alpha Newsletter ahead of next week's in-person event, we chatted with Lauren Taylor Wolfe, co-founder of Impactive Capital, one of the pioneers of activist ESG investing. I asked her what she makes of the increasingly noisier controversy, and she said, "not every ESG product is created equally."
"ESG without returns is not sustainable," Taylor Wolfe said. "Like all trendy things, sometimes the pendulum swings too far in one direction. And so now there's been a lot of scrutiny on a lot of ESG products."
At Impactive, Taylor Wolfe said they seek to take a different approach. Her team will look at publicly traded companies where they can address a business problem with an ESG solution, while also ensuring that the solution can drive profitability.
An example she gave was Asbury Automotive Group, one of the largest car retailers in the U.S. Impactive is the third-largest shareholder, after BlackRock and Vanguard. And she said that amid the labor shortage, her firm spoke with management about attracting and retaining women mechanics, through benefits like maternity leave, additional women's restrooms and flexible work weeks. She said by making investments like these, Asbury can drive higher utilization, which will drive higher overall enterprise value.
"It doesn't happen overnight, but it can have a huge impact, long-term, on the overall returns of that business," she said.
As for the ESG pendulum, Taylor Wolfe said she's studied the wants of younger employees and customers, and they care about how they spend their time and dollars and continually do so in ways that align with their value systems.
"I don't think we're going back to the days where the pursuit of profits, full borne at the expense of the environment or society is where we're headed," said Taylor Wolfe. "And I think smart ESG initiatives are simply good business. It makes companies more competitive, more profitable and more valuable over the long run."
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