|(This is a guest post by our partner, Omega Point, from their Factor Spotlight Series)
This past week we have been both outraged and heart-broken watching protests against racial injustice unfold across the country. We stand in full solidarity with the Black community to fight systemic racism. We pledge to do our part to listen and to learn more about how we can impact change using the resources and tools available to us within the investment management industry.
We believe that the investment community is in an especially unique position to enact change by choosing where we deploy our capital. As many of you know, the use of ESG or Environmental, Social, and Governance factors in investing is not a new practice in our industry. Over the last several decades, funds have shifted their investment practices to include investing in green/environmental companies, however, fewer funds have prioritized social factors. The ‘S’ factor scores a company’s diversity, human labor practices, community facing programs, compensation and more. A company’s ‘S’ factor score is also significant in determining how effective it will be impacting widespread social change.
Over the next several weeks, we will focus on examining Social factors and demonstrate, with both external and direct empirical research that companies that score higher on ‘S’ factors are-on average-better performers over the long term than companies with poor ‘S’ scores. We think that this is a powerful signal to the investment management community as it represents a positive feedback loop:
- Investors allocate capital to companies with strong social practices THUS allowing those companies to invest in programs and movements such as Black Lives Matter AND drive higher returns for those investors.
We believe it is imperative that the investment industry unite in driving broader social change, and we stand by you to help implement socially responsible practices into your investment process.