Social investing gets a boost from an unlikely source: activists

Questions remain for the trend in the short term, however, as President Donald Trump’s administration actively pursues topics considered antithetical to long-term environmental sustainability.

The president has resurrected the Keystone XL and Dakota Access pipelines, sought an end to “the war on beautiful, clean coal,” called climate change a hoax, pulled the U.S. from the global climate agreement signed in Paris in 2015 and appointed Scott Pruitt — who’s promised to roll back emissions regulations – as head of the Environmental Protection Agency.

“This is a great benefit to the fossil fuel industry, to traditional investors in coal mines,” said James Henry, former chief economist at McKinsey and senior fellow at the Columbia Center on Sustainable Investment. “The regulatory environment has also shifted against ESG investing. The EPA has essentially been strip mined.”

“All of that doesn’t augur well for U.S.-based ESG companies,” he added. “It’s hard to believe this will be helpful to companies like Tesla, which are struggling to finance themselves anyway.”

Still, it’s unlikely Trump’s actions alone could stem the flow of cash into sustainable investments. A burgeoning body of literature has hinted that companies that prioritize firm-specific ESG issues also tend to outperform as long-term investments.

Analysts at advisory firm Institutional Shareholder Services have also been following the trend as more and more funds express interest in the area.

“It is helpful in particular to the hedge fund space, where we’re only now getting information in recent years,” said Marija Kramer, head of ISS’ responsible investment business. “We definitely have clients that look at just straight gender balance and others that look at experience, what committee which board members are sitting on, and whether that’s in line with the company’s business practices.”

Kramer told CNBC that funds have come to ISS for advice on a variety of topics, from staying ahead of reputational risks on hot button issues like sexual harassment to incorporating green energy into their portfolios. The growing interest in ESG has, in turn, been accompanied by new ways of measuring sustainability, she added.

“It’s more quantifiable now,” Kramer said. “In addition to having the historical content, there’s more research into the impact of ESG investment. … It could even help performance.”

Despite the early optimism behind the shift to ESG investing, it’s clear to Pershing Square’s Bill Ackman that Wall Street still has a lot of work to do when it comes to gender balance in activist investing and corporate board representation.

“I actually have wanted to run a proxy contest with an all-female, diverse, ethnic slate. I think, first of all, that it would send an incredible message. And I think we’d win, hands down,” Ackman said at the 13D Monitor summit. “The difficulty for us has been recruiting directors, and in particular women in an activist context.”

Ackman said he had initially considered two female directors for his Automatic Data Processing slate last year, but that one of the women dropped out as the bid became hostile. Pershing Square, which raised $500 million from investors to take a stake in ADP, eventually lost its proxy fight with fewer than 25 percent of the vote.

“We had a phenomenal female director for our ADP slate, we had one on our slate,” Ackman said. “But we had another phenomenal director and she had been on the board of very important, interesting companies. She completely understood all the issues, she had a superb, relevant resume, but once it was a proxy contest she wasn’t going to participate.”

“I think what the shareholders can do is, the big institutions can make clear that the fact that someone hasn’t served on a board before shouldn’t disqualify them from being a credible candidate for the board,” Ackman said.

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