Many believe that our actions should align with our core values. As consumers, citizens, workers, parents and investors we are making important choices about the future all the time. Was the food we bought grown or raised, and what impact did its production, distribution and consumption have on climate change, biodiversity, pollution and wellness? Were the workers who produced it treated fairly? The growth of the organic food industry suggests values-based choices are taking priority.
More people than ever have become investors in stocks and bonds. The idea of aligning our values with our investments took root about 50 years ago. Until recently, the idea was to eliminate from our portfolios companies that harmed the environment, created weapons, and produced harmful foods and substances like tobacco and alcohol. Known as “socially responsible” or “ethical investing,” values drove financial decisions, in spite of the potential for underperformance or higher costs.
Why ESG Factors Matter
Over the years, this movement focused on broader aspects of the corporations we invest in and turned its attention to the so-called “ESG factors” – the environment; social factors like the treatment of workers; and governance practices that determine how well companies are managed. By focusing on what companies do well, ESG factors can be used to “screen in” companies that are doing it right rather than simply eliminating the worst offenders. These are the companies that can avoid, or at best mitigate, the risks of global warming, labor distress and unrest, and sloppy or corrupt management – and have the potential to thrive financially.
Values-Based Sustainable Investing
Our financial system depends on individuals, banks and venture capital firms to invest in companies they think are most likely to succeed over the long-term. Today, Values-Based Sustainable Investing (VBSI) identifies investment opportunities that favor companies that operate in a clean, fair and efficient manner, and that create products and services that address megatrends like the transition from reliance on fossil fuels, automation, electrification, new water technologies, genomics and the expanding role of artificial intelligence and information. Companies aligned with these values are most likely to operate sustainably and reward their investors with a share of their profits.
This is a far cry from thinking underperformance is the “price” for investing responsibly! While there are no guarantees, we can consider how companies integrate ESG factors with their financial fundamentals when deciding where to place investment dollars. VBSI is pointing the way to a new form of investing, a way for investors everywhere to contribute to building a better future.
This information is not intended as investment advice or as a recommendation of any product, strategy or service. Securities, investment advisory and financial planning services offered through qualified registered representatives of MML Investors Services. CRN202904-11037651
