Exploring ESG: not everything is black and white

Staci West 02/04/2020 in Sustainable investing

Since lockdown started, I’ve played more games of Uno, Battleships and Gin Rummy than I care to admit – that’s on top of the three 1,000-piece puzzles completed. I’ve also watched at least one Disney movie a day since the launch of Disney+!

But even that hasn’t distracted me from all the doom and gloom – the negative headlines and scary numbers. So I’ve been desperately searching for some good news – some stories about people and companies doing nice things.

I found plenty, thankfully, but they also had me re-thinking my view on what makes a company ‘responsible’ or ‘ESG-friendly’, and the whole debate around ethical investments…

“Every crisis has got villains, victims and heroes. Right now, it’s pretty clear that the virus is the villain and Amazon has a chance to be the hero. The moment is right to do a really good thing. [But] they could end up the villain if they wind up putting people in harm’s way.” — Eric McNulty, expert in crisis leadership at Harvard University

So, what is ESG, exactly?

ESG investing, or environmental, social and governance investing, is an umbrella term for investments that are deemed responsible, provide a positive return. and have positive impacts on the environment, on society and on the performance of a company. How funds incorporate ESG into their process may differ and, if you need a refresher on the four types of sustainable investment approaches, visit our millennial’s guide to responsible investing.

Why is this relevant today?

Quite frankly, the current global healthcare crisis is putting companies that claim to be ESG-friendly to the test. It can be hard to stick to your principles when everything around you is collapsing. When employees are forced to self-isolate and entire cities go into lockdown, how a company takes care of its staff and customers in times of crisis is laid bare.

The current situation is also drawing attention to new companies that perhaps should be considered within what David Coombs, manager of Rathbone Strategic Growth Portfolio, refers to as the ESG ‘journey’, or ‘grey area’. This struck a chord with me, especially because I’m usually the first person to stop using a product after some bad press or, god forbid, admission of animal testing.

Enter exhibit one in my thought process: LVMH using its productions lines to start making hand sanitiser for the French health authorities free of charge.

LVMH, a holding in both BlackRock European Dynamic^ and Threadneedle European Select^, is not considered an ESG company because it sells cosmetics to China, where it’s required by law to test products on animals before they can be sold to human beings. David told us about how the group is engaging with Chinese officials to hopefully one day change this, and how it’s moving away from plastics in its products and opting for glass instead. This is a great example of why ESG is not always black and white.

There’s always going to be a debate on what is and isn’t okay but, as David explained, it’s just as important to engage with companies that are on their ESG journey, as those that have already arrived. They need investor engagement and support to make sure they are able to complete that journey.

Another example is Facebook, which has fallen out of favour recently with ESG investors. A top holding in T. Rowe Price Global Focused Growth Equity^ fund, the firm has set up a $100m grant programme to support small businesses hit by the coronavirus. It’s also reportedly giving all its employees a $1,000 bonus to support remote working.

Moving forward as conscious investors

As we undoubtedly consume more and more news, and hear about who’s doing what during the crisis, it’s a great time to take this information and focus on the change — or a journey — towards ESG.

You’ll remember those airlines that let thousands of employees go and those companies forcing infected staff to take unpaid sick leave. But you’ll also remember those that did what they could.

Like Tesco, the top holding in Smith & Williamson Enterprise fund^, giving all its staff – full time or hourly – a 10% bonus backdated to 9th March until the 1st May. Or Sainsbury’s – whose Sudbury store is owned by TIME:Commercial Long Income^ – offering delivery slots to their elderly customers first. Some will also remember The Four Seasons in New York City providing free rooms for New York’s medical personnel, and Chelsea Football Club doing the same for NHS staff, with its London Millennium hotel.

When all is said and done and lockdown is over, consumers will have a chance to put their money to use and hopefully reward those companies doing all they can to help in these hard times.

P.S: if you have any good news to share, or examples of companies that are genuinely doing good and helping people, please Tweet us at @FundCalibre or email us at info@fundcalibre.com

^Source: Fund factsheet, 29 February 2020

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