What’s up, everyone? Today, we’re discussing what’s going on with ESG and why you need to pay attention.
What is ESG?
Environmental Social Governance (ESG) is used to measure the impact of a company, other than from a monetary perspective.
ESG helps us answer questions like, “How does your company contribute to society?” or “How is it being governed?” or “How does it affect the environment?”
It includes “environmental” because it analyzes how the company does on electricity, waste management, carbon footprint, and more.
“Social” refers to how you treat employees and how diverse your employees are.
“Governance” asks, “Does your company run ethically?” or “Are you moving humanity forward?”
Why is This Important?
Many investors around the world were asking themselves, “Yes, I’m getting a great return on this investment, but am I doing good in the world?”
As a result, many firms have launched ESG financial products.
Lincoln said in his video that…
“The problem with ESG is that everything is subjective. Every company quantifies and scales their interests differently.”
Something that’s an important ESG factor for one company could not be considered important to another.
There’s a lot of gray area when it comes to what constitutes an ESG investment.
How Does This Apply to Fund Managers?
After talking with various sovereign wealth funds, private equity firms, and family offices about ESG, here’s Lincoln’s opinion…
“If you’re starting a fund and thinking about the ESG component, remember that claiming to be an ESG fund will restrict you”Lincoln Archibald, Fund Coach
ESG = restrictive
Lincoln suggests you look at investments independently of the ESG factor, then put an emphasis on something if you wish.
Some of you might have noble aspirations of donating to non-profits with your funds or donating to charity, and that’s great.
But, if you’re a new fund manager, do yourself a favor and keep it simple.
Then, branch out later when you have more deals, capital, and investors.
If you do end up donating money, donate the GP money, not the LP money. Using investor money gets messy!
When asked about ESG, BlackRock CEO Larry Fink said it best…
“I do not follow populism. I follow my long-term investment objectives.”
I hope this helped you understand what’s going on with ESG and how it applies to you!
That’s it for today!
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DISCLAIMER: This content is for educational and informational purposes only. It is not to be taken as tax, financial, or legal advice. You should always consult a legal professional before taking action. Furthermore, this is not a recommendation to buy or sell any security. The content is solely just the opinion of the author.