Over the last ten years, the trend of investing in accordance with one’s values to support certain social and environmental goals has become significantly more popular. This impact investing is now growing to commonly include the screening of publicly traded companies—often for their Environmental, Social, and Governance (ESG) scores.
By virtue of being relatively long-term investors, primarily in individual stocks, our firm has, in a sense, been paying attention to these factors for decades. This is because we believe that, over time, ethical companies with broad and good governance that treat their employees, customers, shareholders, and communities well will likely be better long-term performers. In our opinion, these traits are hallmarks not only of good corporate citizens; they are hallmarks of good business.
At Obermeyer Wood, we take pride in supporting organizations that focus on bettering lives and solving current and future problems confronting our communities. In addition to donating to a range of nonprofits in Colorado, many of our team members are also active board members or volunteers for organizations that are working hard to build a better tomorrow. My family is a long-time advocate and early adopter of renewable energy, which we incorporated into the Sport Obermeyer ski company headquarters at the Aspen Airport Business Center in the 1970s. In the late 1980s I developed, and our family continues to own and operate, a hydroelectric project in Southwestern Colorado that annually produces about 18 million Kilowatt-hours of clean energy. It generates enough power for about 4,000-5,000 homes in the summer months, and I calculate that the clean energy the project produces has displaced about 430,000 metric tons of carbon dioxide from going into the atmosphere over the last 30-plus years.
Through this personal experience, I have seen firsthand that companies focused on prudently implementing forward-thinking business practices tend to be well positioned for sustained success. Our team is constantly searching for companies that can deliver the win-win of shareholder profit and productive corporate citizenship. Our investment approach of owning individual companies allows us to be thoughtful and direct in building customized portfolios that we think best position our clients for long-term investment growth while reflecting their values. At the core of our investment analysis is the belief that we should look for truthful, principled, and transparent companies. When evaluating a stock, we believe that having to pick between company profits and principles is a false choice. In our experience, companies that “do good” are more likely to “do well” over the long term. To put it another way, we think that companies with strong management, forward-looking business practices, and a concern for the future well-being of the environment and the people they serve tend to be attractive businesses in which to invest our clients' capital.
We look at a diverse range of factors when evaluating investments. In addition to modeling cash flows, understanding management incentives, assessing market opportunities, and other quantitative factors, we consider qualitative items for both risk and opportunity. Among other things, our criteria include understanding the sustainability of resources, identifying the byproducts of processes, reviewing relationships with employees, examining business practices and safety records, and assessing management talent. By doing so, we believe that we can avoid risk that often befalls companies that are not operating in good faith or within regulatory bounds.
As investors, it is paramount that we focus not only on ESG risk exposure but on the opportunities this framework provides. Using this opportunity lens, we can look at companies solving current and future problems related to health, wellness, diversity, sustainability, energy, and corporate governance and culture. Adopting an ESG mindset is more than just posturing and public relations; it has proven to be an indicator of a company focused on long-term growth, which benefits the companies that embrace this forward-looking mindset, in addition to their investors and customers.
One caveat is that current ESG scoring is crude at best. Reporting can be fraught with self-promotion (since many factors are self-reported), oversimplification, and often unrealistic goals. For example, should the score of an electric vehicle manufacturer include the extractive resource costs of mining for battery materials, or should an oil company rapidly shifting its energy portfolio to an imperfect but still lower carbon output energy mix be penalized? These answers take a broad degree of human and company-specific judgment. Stewarding your capital well also takes discipline to pass on many naive yet well-intentioned endeavors that ultimately don’t make money.
We remain committed to the thorough investigation of the companies that our clients own. We believe that integration of ESG criteria allows our investment team to gain a more comprehensive understanding of a company, which should ultimately lead to better-informed investment decisions. We applaud our industry’s increased focus on sustainable investing, and we appreciate that more transparency and information related to ESG allows us to do a better job by having access to a broader pool of research and opinions.
For most clients, knowing that we are thinking about these issues is sufficient and comforting. At the same time, ESG can mean different things to different people, making it even more important that we seek to understand, not assume, our clients’ principles, opinions, and beliefs. We will continue to encourage our clients to reach out to us to discuss ESG analysis further as we seek to continually learn more about the intersection of clients’ values and investment value.
President & Co-Founder