Don’t believe the conservative hype. The campaign against sustainable investing is a scheme propped up by special interest groups, shady billionaires, and the fossil fuel industry. It has no future among investors, fund managers or anyone who wants to protect their money from foreseeable risks.
Still, I’m deeply concerned by the highly orchestrated attacks on the investment profession and the focus on restricting investors’ freedom to exercise their professional discretion and fiduciary duty.
We’re pushing back. The facts are on our side.
Sustainable investing is about using data to manage risk.
To maximize returns, an investor must be able to manage and mitigate risk. The more data we have, the better informed our decision is when building portfolios over the long-term.
Sustainable investing is an evidence-based analysis that is about looking at a wider range of risks and value opportunities that can have a material financial impact on investment performance. It is evaluating not only traditional financial factors like profitability and creditworthiness, but also evaluating in greater depth intangible assets such as productivity, culture, and how a company innovates.
Here’s an example: If you’re investing in a pharmaceutical company, it’s thinking about whether that company has exposure to massive lawsuits because of its role in the opioid epidemic.
This approach is backed by academic research, but it is also common sense. Companies that value their workers have less turnover and higher productivity. Companies that build a strong governance structure will be more resilient and valuable over the long-term. Companies that invest in research and development preparing for changing market demands will be better protected from transition risks and changing consumer demands.
There’s risk in ignoring material data. It’s irresponsible to tell investment professionals to ignore information that they can use to do their jobs better. To ask investment professionals to ignore material risks and investment opportunities is asking us to stop doing our jobs.
Should we ignore when health-care companies understaff their operations and jeopardize the safety of patients? Would you expect a company that does this to continue to increase in shareholder value? Should we ignore the opportunity to invest in new renewable technologies and make money on firms that could grow immensely in 5 or 10 years? Should we not look at the skills and composition of the people responsible for overseeing the companies in which we invest?
Obviously not. All of these issues can be materially significant. The practice of evaluating material sustainability factors is considered the mainstream for investment practitioners.
It would be irresponsible to ignore them and foolish to hinder professionals’ abilities and their freedom to invest responsibly. Opponents have put together an astroturf opposition to decades of work by investment professionals, and it’s a dangerous intrusion into our free market system.
This is beyond the semantics around the terminology of sustainable investing. This is affecting practice for fiduciaries everywhere. Left unchecked, this war on investors may cost taxpayers and pensioners millions of dollars. And that has the potential to obstruct investors' ability to protect and grow people's hard-earned savings.
Now is not the time to stop investors from considering prudent data that can lead to better returns over the long-term. The American economy depends on investors. Let us do our job.
Sustainable investing is about the long term over the short term.
As State Treasurer, it is my job to protect and grow the hard-earned savings of families across Illinois, as well as funds that state and local units of government depend on for building and maintaining the roads, schools, and other public investments that our communities and economy rely upon.
I take this responsibility very seriously. Whether it’s the single mom trying to save for her kids’ college tuition or the town financing new schools, I know they are trusting the Treasurer’s Office to grow returns on those funds over the long-term and ensure they have the money they need in the meantime.
I am tasked with investing not just for the next quarter – but with the goal of maximizing returns over the next quarter century.
Sustainable investing is about value, not values.
We are witnessing a widespread, highly coordinated, politically motivated attack on investors and the hard-working people they serve. This pushback is anti-free market and anti-investor, and it is misleading and harmful. It harms retirement savers, pensioners, working people, businesses, and America.
Our approach is to integrate material sustainability factors into investment decisions along with many other considerations. We are not ignoring traditional financial factors. We are integrating more data into our decisions to give us a better idea of risk and growth prospects.
While I welcome healthy debate about best practices and the nuances, I do not welcome the deployment of blacklists and overreaching legislation that would strip professionals of their freedom to invest responsibly. I do not welcome decrees that ignore the research, fundamentally misunderstand the role of fiduciaries, and impose real costs on taxpayers, pensioners, and hard- working families. The good news is that such efforts are failing. There’s little support for sustainable investing bans among investors, public fund managers and even many Republicans.
It’s my job to seek the highest risk-adjusted returns over the long-term for working people, retirees and local government entities. And this anti-sustainable investing fad isn’t going to distract me from that mission. I remain as committed to sustainability as ever before.
Michael Frerichs
Illinois State Treasurer