By Thomas Kostigen
Should politics and investing mix? A recent column in the Wall Street Journal claims they should remain separate and distinct, that shareholder value is different than political values, and that the rise of the environmental, social, and governance (ESG) category of investing is corrupting the wall that should remain between the capital markets and the Capitol.
The guest column claims that the growing “stakeholder capitalism” movement is using the ethical-custom concept to impose a progressive agenda on American businesses and that it will have negative implications for investor returns.
To be sure, the latter part of that claim, is curious. Last year, companies that embraced ESG protocols and ESG mutual funds outperformed their counterparts. Like any investment, over time, these performance numbers can be parsed to show negative correlation to peer groups during a particular period. But last year’s historic market downturn due to the COVID-19 pandemic was perhaps the biggest risk measure to be imposed on companies and markets in recent memory. The fact that ESG-associated investments held steady and outperformed should be considerably noted. In any event, the point of the WSJ wasn’t squarely on investment performance, it was on this point: “While investors are free to do what they choose with their money, many object to progressives’ use of corporate governance to advance their agenda.”
Corporate governance is defined in a number of different ways. According to James McRitchie, the publisher of the website Corporate Governance (CorpGov.net), “Corporate governance is viewed as both the structure and the relationships which determine corporate direction and performance.”
Few would dispute that transparency is necessary for corporate governance to be effective. Few also would likely dispute that fair labor, gender equality, and representative boards should be in place to exact a positive and diverse work environment aimed at empowering many not just the few at the top. It’s the point of “corporate direction” wherein political leanings might arise. And no matter which side of the political aisle on which you sit, you as an investor you should have the right to know the political leanings of the companies in which you are invested or may have interest in investing.
The Sunlight Foundation was launched with this idea in mind. It was supported for 15 years (until it shuttered last September with its archives donated to the Berkman Klein Center at Harvard University) by high profile business executives like Craig Newmark, the founder of Craigslist, among others. The idea was simple: what issues do companies support, and to which campaigns do they donate? Are they the recipients of government subsidies?
All of these things can be discovered by digging through corporate reports. (And a good financial advisor can help research these facts for clients.) Does it matter if a company is left leaning or right leaning? It might to you. The socially responsible investing movement largely came about because of the political issue of apartheid in South Africa. Businesses with links to the country were divested from. Filters such as those that weed out tobacco, firearms, or even healthcare (for those concerned about investing in companies that, for instance, might support abortion) have become legion in the ethisphere from which ESG has sprung.
Politics and investing do indeed mix. To whose benefit and to whose liking are really the questions that need answering. And investors have the right to know the answers.
Thomas Kostigen is a contributing writer to MyPerfectFinancialAdvisor, the premier matchmaker between investors and advisors. Thomas is a best-selling author and longtime journalist who writes about environmental, social, and governance issues.