University of Miami: Miami Herbert Business School embraces ESG approach
A decade ago, the notion of partnering business investment strategy with practices that assessed how a company utilized fossil fuels, managed water resources, or sought to reduce pollution within its supply chain might have been dismissed as the ultimate “odd couple.”
Yet during the past 10 years, and especially within the past few, the marriage of these motivations and strategies—known as environmental, social, and governance (ESG) investing—has become among the most rock solid in the investment field.
“There’s been a huge acceleration over the past two to three years in ESG investment strategies,” said David Kelly, an economics professor and academic director of the Master of Science in Sustainable Business at the University of Miami Patti and Allan Herbert Business School. “These trends and how they’re affecting company behavior are very much on the rise.”
Kelly recently facilitated a webinar on the topic for a potential business school student audience, an indication of how prominent ESG strategies have become. ESG investing is also part of the curriculum for the M.S. in Sustainable Business and a career path for graduates of the program.
He noted that adherence to these values and mission-driven guidelines was virtually non-existent a decade ago, yet now encompasses as much as 30 percent of all investment assets—a sum calculated in trillions of dollars.
The first of ESG’s three pillars—environmental—is the most easily understood. This perspective might assess a company’s use or dependence on fossil fuels, use or management of water and other resources, and the pollution levels generated through production or the supply chain.
The social pillar references the degree of acceptance by employees, investors, customers, and other stakeholders for a firm’s commitment to fair labor standards, safety, diversity, and workplace policies. The governance pillar hinges on trust and is often assessed in terms of transparency, board diversity, integrity, and ethical operating practices.
In opposition to long-standing beliefs, adherence to ESG practices results in improved efficiency, employee satisfaction, and lowered risk—often leading to more productivity, which is driving the incorporation of ESG principle and practices, according to Kelly.
“As an investor, I want to make money, but may only want to invest in companies that have my values. So, part of the decision is preference-based, but part is the idea that these companies tend to be better run a lot of times,” said Kelly, referencing indicators such as better worker retention because employees are more satisfied overall, reduced susceptibility to lawsuits because of preventive efforts, and lower costs owing to increased efficiency and profitability.
There are not yet laws requiring public companies to include ESG reports in their Securities and Exchange Commission filings but scoring practices as part of an ESG checklist are becoming increasingly influential.
“For many potential investors, good scores related to water use and recycling or social factors such as workplace safety, diversity, and gender equity—or in terms of governance, a record of transparence and not bribing foreign officials—are all important indicators,” Kelly pointed out.
In another example of the rising influence of ESG at the University, a cadre of business students last spring launched the student organization Century Fund.
Jordan Sotomayor, a sophomore and finance major, fueled the drive to create the organization. He described Century Fund as a “cutting-edge strategy group promoting investment in sustainable companies and advocating for an environmentally sustainable future.”
Members are segmented across five industries—energy, transportation, fashion, tech, and agriculture—and meet weekly to assess both the sectors and the companies within those sectors in terms of ESG investment capacity and commitment.
Sotomayor, who served as president for three years of his high school’s investment club, approached Dean John Quelch with the idea of launching the initiative soon after arriving at the University, and he received enthusiastic support.
For now, the student organization focuses on publishing a quarterly investment newsletter that compiles its findings and is intent on developing its expertise and growing its network.
The student team, with some 30 active members, is advised by Michael Giordano, a former Verizon executive, and Daniel Maren, CEO and co-CIO of Long Run Capital, who is listed as a Forbes 30 Under 30 entrepreneur.
“We’re not experts, but we’re a really dedicated team that strives to be. It takes time,” said Sotomayor.