ESG Movement

The recent (or maybe it’s not that recent) movement into ESG investing has been a push that I can get behind. ESG means environmental, societal, and governance based investing and to boil it down even further, it is the idea that money can be made while improving the world’s well being. Overwhelmingly, who wouldn’t want to take part in that, and it is pushing company CEO’s to rethink the durability of their businesses while taking into account values of all stakeholders and not just stock holders: The CEOs of nearly 200 companies just said shareholder value is no longer their main objective.

After hearing about the action of these CEO’s, it immediately made me think about an interview I had seen with Jeff Ubben at Davos, I encourage you to listen because in some sense taking an activist approach to ESG investing is a bit ahead of the curve.

So now we have CEOs building their strategies (or strategy credits) around ESG, and we have prominent investors pushing ESG objectives onto companies to influence the way things are going, a path that is promising for sure.

I don’t mean to minimize the above, and let’s continue to push with the above, but hasn’t this idea of increasing value for all stakeholders kind of been known. Thinking about the value of stakeholders is necessary to develop a durable business, and create a sustainable competitive advantage. Think about these businesses:

  • Tesla (build an electric vehicle to cut down in emissions, but for the masses)
  • Waste Management (focus on their efficiency in their recycle efforts, even recycling as a primary part of their business model)
  • Costco (highest paid employees and lowest turnover in retail)
  • Starbucks (removal of plastic straws, college tuition for employees, stock based comp for all employees)
  • Apple (recycling and trade in program, higher than industry manufacturing standards)

A lot of this was driven by consumer preferences, and the ESG benefit is really just a supplement to the company’s strategy but it created a sustainable advantage. Particularly, and this is because I have been reading a lot about Costco and Starbucks lately, think about how much of your experience at these places are driven by the happiness of the employees and customers alike. Certainly stockholders are reaping the rewards now but it was a long road to build that engrained culture of benefiting the employees and customers. Think about how difficult it must be to compete with a Costco knowing as a retailer they have been delivering on top pay and benefits for years to their employees.

Perhaps separately, this has me thinking about, well what is Private Equity to do now because their primary model was to buy a company to lean it out and fill it with debt. It still may provide juicy returns on certain types of businesses, but more and more industry is focusing on this ESG sustainability. A bit at odds.