3 Reasons to Invest in ESG in 2020

Why push for stakeholder capitalism and invest in JUST companies?

At the outset of a new year, opportunities abound to change old habits and to explore new paths. And in 2020, we find ourselves well-poised to drive toward stakeholder capitalism, ultimately building an economy that works for all Americans. 

Many companies are at the forefront of this moment, and investing in those businesses is beneficial not only for the wider American society, but also for investors themselves. Below, we explore three major reasons why this is the case.

1. ESG Aligns Your Investments With Your Values.

JUST Capital believes that businesses can and must be a greater force for good. Investors can be part of the solution, addressing inequality by shifting their portfolio toward more just companies that align with their values. When looking at companies’ impact across the five key stakeholders of business – Workers, Customers, Communities, the Environment, and Shareholders – we find that the JUST 100, the 100 top performing companies our Rankings, are clearly surpassing their lower-ranked Russell 1000 peers. On average, they:

These statistics suggest that these leading companies are not just talking about corporate responsibility, they’re also acting upon it. Investors who believe in stakeholder capitalism can use ESG investments to follow through on their beliefs – driving dollars toward the companies creating actual impact for their stakeholders.

2. ESG Optimizes Your Financial Returns.

Following through on values does not mean sacrificing returns. An example for this is the JUST U.S. Large Cap Diversified Index (JULCD). The JULCD Index includes the top 50% of Russell 1000 companies ranked by JUST Capital by industry and is constructed to match the Russell’s industry weights. Since its inception on November 30th, 2016, the JULCD has returned 15.94% on an annualized basis, 118 bps ahead of the Russell 1000’s 14.76% return:

Consequently, a focus on ESG does not necessitate a sacrifice in financial returns – instead, it can generate gains for both individual investors and society overall.

3. ESG Helps Avoid Downside Risks.

In addition to maximizing returns, ESG investments can help limit exposure to downside risks, for example by reducing exposure to controversies and hidden liabilities. Using daily stock price movement for the last 10 years, we find that the average value at risk as well as the average expected shortfall – both widely-used loss measures to assess market risk (e.g. BIS, 2019) – are about 25% higher for the lowest-performing quintile (Q1) of companies when compared to the top-performing quintile (Q5), which includes companies such as the now-bankrupt PG&E Corporation:

While investments in just companies do not entirely eliminate downside risk, they significantly reduce it.

ESG Creates a Win-Win for Investors and Society

Furthering stakeholder capitalism by investing in JUST companies is a win-win for investors and society: For investors, ESG investments can maximize returns and limit downside risks; for society, they can benefit all of business’ core stakeholders and ultimately improve the livelihoods of all Americans.

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The information contained herein is for informational purposes only without regard to any particular user’s investment objectives, risk tolerances or financial situation and does not constitute investment advice, nor should it be considered a solicitation or offering to investors residing outside the United States. JUST Capital makes no representation as to the advisability of investing in any investment fund or other vehicle. Shares of JUST are made only by prospectus. The addition, removal, or inclusion of a security in any JUST Capital index is not a recommendation to buy, sell, or hold that security, nor is it investment advice. The JUST Parties do not in any way sell, sponsor, support, promote, or endorse any securities based on the JULCD, or have any involvement in their operations or distribution. Prospective investors should not make a decision to invest in any investment fund or other vehicle based on the information contained in this website, and JUST Capital shall not be responsible or liable for any advice given to third parties or decisions to invest in any investment fund or other vehicle by you or third parties based on the information. Index performance does not reflect the deduction of any fees or expenses. Past results of the JUST U.S. Large Cap Diversified Index are no guarantee of future performance.

The JUST U.S. Large Cap Diversified Index is calculated and maintained by FTSE Russell using the Russell 1000 Index as a starting universe, and aims to reflect the performance of a JUST Capital Foundation Inc. methodology. FTSE Russell does not sponsor, endorse, sell, or promote any investment vehicle that is offered by any third party that seeks to provide an investment return based on the performance of any index. It is not possible to invest directly in an index.

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