Cornerstone Capital Group does not distinguish between “impact investing,” “ESG investing,” and “sustainable investing.” They believe these terms reflect the same motivations and strategies – a mindful method of investing which is “radically practical.” While environmental, social, and governance (ESG) practices generally describe the actions investors and companies take to achieve progress towards sustainability, Cornerstone Capital sees these practices as a critical discipline.
ESG as a discipline
Cornerstone Capital is a registered investment advisor founded in 2013. Cornerstone’s CEO, Erika Karp, feels that she came to sustainability quite organically. In Karp’s over 25 years experience on Wall Street, she has observed that systematically analyzing the most important environmental, social, and governance factors leads to a more predictive insight into issues which have been outside of traditional financial metrics that affect companies.
For example, a company might struggle with reputational issues around food safety incidents, or corruption within a company’s supply chain. As an investor, having access to this information makes you a better investor. Sector by sector, company by company, environmental, social, and governance indicators are absolutely material to the financial outcomes. Water scarcity affects a beverage company and their operations. Carbon prices and emissions affect shipping and airline companies.
ESG issues need to be part of the mosaic that an investment decision relies upon. The idea of sustainable and impact investing should be viewed outside of the ideological, politicized, and moralistic, and seen instead from a perspective of enhanced analytics, pragmatism, and risk-adjusted return analysis.
Companies and investors with a long-term perspective on value creation will pursue strategies consistent with this idea of sustainability.
We use the discipline of ESG analysis to identify emerging trends that may create disruption.
The convergence of technological, regulatory and behavioral change can help to identify both investment risk and opportunities. – Erika Karp
Currently there are a lot of factors driving sustainable practices
Pension funds, endowments and foundations
We are seeing real leadership from the major asset earners, like pension funds, which have to supply benefits for a very long time. There’s been incredible push by some asset earners such as pension funds, endowments, and foundations to think about our world as a system, and to view investments as existing within that system.
On the corporate side, there is aggressive movement towards transparency and disclosure. Corporations are asking how they can do what they do for the long-term. Even if there is an administrative or regulatory authority that’s entirely misdirected, the economics play out first. This amounts to great progress notwithstanding any misguided policy. The establishment of standards for disclosure of ESG factors by corporations further serves to drive innovation.
Today there is an unprecedented demand for the transparency of corporate sustainability and sustainable investment. We’re seeing a huge shift in the dynamics of the capital markets among asset owners, asset managers, investment banks, regulators, exchanges, accountants, and academics.
The Disruptive Trends Driving Change
Social media is driving transparency
We are seeing social media driving transparency like we’ve never seen before. Big data is allowing all of that noise out there to become insight and companies are finding their corporate responsibility viewed under a microscope.
Massive inter-generational transfer of wealth
In addition, there is a massive intergenerational transfer of wealth. Over the next 30-40 years, an estimated 30 trillion dollars will transfer from the older to the younger generations. The younger generations are really starting to explore what money and their financial life means to them.
Change in mindset on a grand scale
While it seems that, traditionally, people have been able to separate their financial life from the rest of their life, today people are feeling a strong emotional need to resolve the inner turmoil they experience when their financial life is in conflict with their values and beliefs.
Even though trust in institutions has been destroyed, we can fix it because the discipline of finance is changing. It’s becoming more transparent and ultimately more democratized. For example, as an individual, if you work at a company and have a 401(k) but are not invested in any of type of impact funds, it is really just a matter of using your voice and expressing your demand.
A Change in Language
It’s true that the language on Wall Street has been purposefully inaccessible, because that is what sustains the status quo and keeps the power structures in place. But all you really have to say as an investor is, “I wanna put my money with a manager that believes I can get good financial returns and a good social impact. Can I please have those options?” And this needs to happen on a grand scale. There needs to be a lot of people asking for it, demanding it, and we need to see the voices rise.
It’s finally being recognized that the system of capitalism is broken and there is a fierce urgency of now. The magnitude of the problems that we have to address is not going to take millions, nor even billions. We need to move trillions now.
Where can people find out more?
Cornerstone Capital has a lot of research on their website that they believe can empower people to take discussions about sustainable investing to the traditional investing mainstream, such as archaic investment committees or pension fund boards.
Use our research. Take it to the people you want to influence, and show them that there is no inherent underperformance as a result of considering your values in your investments. There are choices you can make as a consumer.
There is a lot of retail education that you can get by researching by yourself, quite simply. Once you get your voice and really exercise it, that’s when it’s powerful. For example, if you have a 401(k), there is no downside to asking direct questions of the corporation you work for:
“Why can’t I invest sustainably? What do I gotta do? Who do I gotta talk to? Who is the board that represents my money? Let me talk to them.”
This article was derived from an interview with Erika Karp, founder and CEO, and Sebastian Vanderzeil, Director and Global Thematic Analyst of Cornerstone Capital Group. For more interviews like this and other videos, check out the Prosperity Roadmap.