Exploring ESG Investing: An ESG Path Forward

Rachel Alembakis, managing editor of FS Sustainability, moderated a panel on different investor approaches to environmental, social and governance and sustainable investments by large and smaller investors as part of PLANSPONSOR’s recent Exploring ESG Investing virtual conference.

Investors Zach Stein and Andrew Siwo provided varying perspectives and offered insights into how they are implementing their ESG and sustainable strategies.

Carbon Collective works with IRAs, brokerage accounts and trusts to help clients become more invested in green, sustainable stock and bond portfolios that are specifically built for solving climate change. It offers services to individual investors through a robo-adviser offering similar to Betterment or Wealthfront, with an average account size of roughly $50,000.  Stein manages a portfolio of 192 companies.

Stein, co-founder and CIO of Carbon Collective said, “we work with one organization at a time to make sure that they get 401(k) plan options that align with their missions.”

This approach differs from Siwo, the director of sustainable investments and climate solutions at the New York State Common Retirement Fund. The $258 billion fund, which is the state’s public pension system, is 103% funded, per the comprehensive annual financial report for the last fiscal year, and has a $20 billion commitment to sustainable investments and climate solutions that he oversees as portfolio manager. In this role, he identifies investments across asset classes that are accretive to its portfolio and meet sustainability goals.

Siwo said, “we view ESG as a tool in identifying risks and opportunities; we do not view it as an asset class.”

Though it may be a tool, Siwo oversees what he calls “an asset-driven approach” in the portfolio, with allocation to real estate, opportunistic credit, private and public equity, private and public debt and real assets such as infrastructure projects.

“The approach is successful because the underlying guidelines and expectations are the same. When I began two years ago, we were at $8 billion, and now were just under $19 billion. In the past two years, we’ve put quite a lot of capital to work,” Siwo said.

According to Siwo, “the CFA institute has four ESG approaches, which include thematic, active/engagement, best in class and ESG integration. Those are four approaches that various managers use. In addition, you have SRI, ESG and impact investing, and those terms sometimes can be conflated.”

Siwo said, “our approach is a sustainable investment approach, so we have a flavor of all three of those investment styles.”

Stein engages with corporate management in pursuit of sustainable outcomes from their operations.

These efforts inform his investment strategy and how he selects the portfolio that he recommends plan sponsors put on their investment menus. Stein said he focuses on companies in which he believes shareholder pressure can maximize value.

“These are the companies we hold, because that’s where we can apply shareholder pressure,” Stein said. “Shareholder pressure is a very important tool in this toolbox, but there is an opportunity cost that exists [so holding these companies maximizes value]. And thirdly, the companies that we don’t invest in are companies whose core business could not exist in a post-carbon world. We don’t hold these companies, because we cannot adequately pressure them into making changes [towards climate ends].”