Outlook 2020: Sustainable Investing & Stakeholder Capitalism

Dec 9, 2019 10:10 AM ET
Article

by Jon Hale, Ph.D,  head of sustainable investing research for Morningstar. In 2018, Hale was named to Barron’s list of the 20 most influential people in ESG investing, and in 2019, he was included in the InvestmentNews’ 10 leaders of ESG & Impact investing

There’s a lot of hand-wringing in the investment world today about the meaning of sustainable investing. Most asset managers have some sort of ESG initiative underway but they struggle to define it and why they’re doing it. Advisors want to offer it to clients but are often unsure how to talk about it. End investors overwhelmingly say they’re interested but look to these same advisors and asset managers for guidance on turning their interest into actual investments. What in the world is happening here?

We’re in the midst of a paradigm shift, and as happens during such shifts when they take place in any field, the practitioners of the old way of doing things – in this case, a focus on short-term returns and traditional concepts of risk – are being left mostly flat-footed.

The old investing paradigm aligns with the notion of shareholder primacy, the idea that the purpose of a public company is to maximize shareholder value. That notion is also on the wane, and for good reason.

Combined with deregulation and tax cuts skewed to the wealthy and corporations, shareholder primacy produced enormous wealth for investors from the late 20th Century through the financial crisis and during its aftermath. Corporate profits set records, which was good for shareholders and corporate managers, but wages for workers stagnated, inequality increased, and tax cuts for the wealthy failed to produce economic outcomes that “trickled down” to the benefit of all. Meanwhile, lost revenue limited government’s ability to finance investments in the social safety net, public education, research, and infrastructure. The planet suffered too, as companies were able to off-load their negative impacts (“externalities”) on the environment and climate.  

Companies today face heightened expectations to be good stewards of the environment, to treat their workers well and pay them fairly, to encourage diversity, respect human rights, deliver safe and useful products, protect their customers’ privacy, and govern themselves in an ethical and transparent manner. This requires making decisions through a sustainability lens, which considers the impact of decisions on all relevant stakeholders today and over the long term.

Read the full article from Morningstar's Jon Hale herehttps://greenmoney.com/sustainable-investing-stakeholder-capitalism 

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