Despite a Tough Year, Women are Still the Future of Sustainable Investing

Above image – ©metamorworks, istockphoto

As a woman who is passionate about gender equity and fighting climate change, the last year has been a roller coaster. Russia’s invasion of Ukraine and the resulting energy crisis in Europe has led to a renewed global emphasis on oil and gas production, and despite the billions of dollars allocated to renewable energy infrastructure in the Inflation Reduction Act passed by congress in August, the transition to a carbon neutral economy seems further out of reach than it did just a year ago. In my opinion, the reversal of Roe v. Wade set women in the United States back decades, and around the world, progress towards equal rights for women has slowed.

As an investor who cares about the social and environmental impacts of my financial decisions and as an employee at LongView Asset Management – an advisory firm that helps clients align their investments with their values – I’ve felt the anxiety of watching the market slide into its worst year since the financial crisis of 2008. ESG investments underperformed the broader market due to many sustainable funds’ heavy reliance on technology stocks and exclusion of fossil fuel stocks, which have soared in value as the world scrambles to secure near-term energy resources.

Over the last year, sustainable investing also weathered attacks from all sides of the ideological spectrum, with environmentalists calling out the financial industry for greenwashing, while right-wing politicians in a growing number of states denounce ESG investing as “woke capitalism” and pursue legislation aimed at boycotting financial institutions accused of undermining the fossil fuel industry.

Despite all the chaos, I feel strongly that now is a critical moment for women to take control of their finances and the direction of ESG investing.

I entered the field after working as an environmental journalist, where I saw how much of a difference it makes to local communities and ecosystems when a company cleans up its act. I decided to pursue a career where I can help make this the norm. LongView is a certified B Corp, which means we’ve made a legally binding commitment to consider people and the planet in addition to profit, and we’ve gone through an exhaustive assessment to prove that our policies and practices are in line with our mission as a sustainable investment firm. The majority of our clients are women, and I know first-hand that women are eager to use their money to drive positive change.

Women are at the forefront of the movement towards a new kind of capitalism – one where companies don’t simply focus on maximizing profits for shareholders, but consider their impacts on all stakeholders, including the environment, their workers, and the communities in which they operate.

This interest is reflected in the workplace and in the way we invest.

Companies where women hold top leadership roles tend to meet higher environmental, social, and governance standards than their industry peers.

When it comes to investing, women have helped fuel the explosion of ESG into the mainstream. In one recent report, 79 percent of women said they want their investments to reflect their values. Another survey found that women are almost twice as likely as men to say it is extremely important that the companies they invest in incorporate environmental, social and governance factors into decisions and policies.

Women have historically been underinvested compared to men, however interest in investing among women has risen by 50 percent since the start of the pandemic.

With women expected to gain control over much of the $30 trillion in baby-boomer wealth over the next decade, the growth potential for the ESG industry is huge.

Given these trends, it’s unlikely that sustainable investing will be a passing fad. Still, the industry is facing some serious growing pains.

While federal and foreign regulators try to pass new rules to raise reporting standards, right-wing lawmakers have thrown sustainable investing into the fray of America’s culture wars.

In the last year, Republican state treasurers collectively pulled more than $1 billion from Blackrock – the world’s largest investment company – and blacklisted other major financial institutions including JP Morgan, Chase and Goldman Sachs due to company policies that allegedly harm the fossil fuel industry.

In 2021, Texas became the first state to pass laws that stop local agencies from doing business with banks that offer ESG funds or policies – a move that caused the five biggest lenders in the US to pull out of the state, ultimately costing local agencies an estimated $303-$532 million in additional interest. Since Texas’ decision, twelve other states have followed suit with legislation that attempts to outlaw aspects of sustainable investing.

On a brighter note, the US Securities and Exchange Commission, European Financial Reporting Advisory Group, and the International Financial Reporting Standards Foundation all proposed new rules in 2022 to standardize reporting on greenhouse gas emissions by companies and reduce confusion and mislabeling in the investment industry through detailed disclosure on ESG strategies and ranking systems used in funds.

The three regulatory bodies expect to finalize their proposals within the next 12 months.

Going forward into 2023, there are still many hurdles for ESG investors to overcome. The potential for continued underperformance of sustainable investments, a general economic slowdown, and new attacks from the right could all dampen the appetite for ESG investing in the short term.

For women, I see the debate around ESG as an opportunity for us to reflect on the outcomes we want to achieve and the investment strategies that would best align with our goals.

In the past, divestment has largely dominated the ESG conversation. This exclusionary approach screens out bad actors while investing more heavily in companies and industries that meet high social and environmental standards. More recently investors have also focused on ESG metrics to manage risk and boost performance.

As we head into 2023, a new generation of investors are pursuing positive change by filing and voting on shareholder resolutions and engaging directly with company management around specific issues. In 2022, shareholders filed a record number of proposals related to social and environmental concerns.

ESG issues are women’s issues – we not only want to protect the environment, but we also want to invest in companies that treat their workers with dignity, that protect women in the workplace at every step in the supply chain, and that adopt policies that increase diversity in leadership. By leveraging our power as shareholders, we can push companies to adopt policies that bring us closer to gender equity and carbon neutrality.

At a time when progress on issues that women care about seems to be backsliding, shareholder engagement is one way forward-and it’s gaining momentum. Despite the trials we are likely to face in 2023, this is a silver lining.

 

Article by Leah Cantor, Sustainability Associate at Longview Asset Management LLC, a registered investment advisor in Santa Fe, New Mexico, that focuses on socially and environmentally responsible investing for individuals and organizations. Leah led the firm in becoming a certified B Corporation in 2018 and is responsible for helping the firm continually improve on its sustainability commitments. Prior to pursuing a sustainable business career, Leah worked as an environmental journalist. She is a passionate believer in money as a tool for positive change.