Cause vs Performance
Do you have to give up performance to invest in the cause?
This is one of our most frequently asked questions, and the most important. In this early stage of socially responsible investing, academic evidence has admittedly been mixed whether investing in a cause adds value.
Concinnity Advisors, LP believes companies that adopt the Multi-stakeholder Operating System (MsOS), a more holistic approach than ESG alone, will paradoxically deliver more long-term value for stockholders than those operating with an overemphasis on shareholder value to the neglect of other stakeholders. We believe you can care about the cause and get performance.
During our research effort and attempts to share our beliefs, we have primarily found two types of investors and investment managers interested in the cause:
"Tree Huggers" - this group cares so deeply about the cause that investment performance becomes a side effect. These funds tend to exempt entire industries (i.e. no carbon, no tobaccos, no guns, no GMOs) or serve a specific niche (i.e. clean water, clean energy). When these industries are excluded, these funds are not truly broad based, and can lag the market when these industries are in favor.
"Box Checkers" - this group has noticed the inflows into socially responsible investing and wants a piece of the action. They are looking to find the most convenient way to overlay an ESG or social cause over their current invest process, and sell their current product "with the ESG box checked" to this growing asset class. But a detailed examination of holdings may reveal that they are only following the cause by name.