How does the multi-stakeholder operating system (MsOS) investment theme align with ESG/Socially Responsible/Sustainable/Impact investing?

 

We believe our research process has gone above and beyond the call of duty to incorporate Environmental, Societal & Governance (ESG) criteria. It’s probably safe to say we’ve incorporated more ESG criteria from more ESG data providers than any other U.S. investment product. Nonetheless, ESG analysis alone is insufficient for determining MsOS commitment and proficiency.

 

For example, customer analytics are heavily weighted in our model, yet very few ESG analytics firms provide customer related data. Those that do mostly collect readily available negative information such as product safety related legal cases, charges of false advertising, product recalls, predatory lending criticisms, etc. While this information might be useful for determining which companies to avoid, it provides little insight about which companies have high quality relationships with customers.

 

We also believe our expectation for what ESG data can contribute to an investment research process is reasonable. We expected it to serve as a proxy for organizational risk and as a proxy for some insight about corporate culture. We never expected it to be a magical alpha source.

 

Regardless of how one defines socially responsible investing or sustainable investing, our basic premise is that the likelihood a company will meet the expectations embedded in any definition we hear, will almost always depend on whether the company is guided by a multi-stakeholder operating system.

 

Our investment theme is least likely to align with impact investing (as typically understood) since early stage companies with a social mission are usually the focus of these investments. These companies typically find ways to use a for-profit business model to deliver goods and services that might otherwise only be made available by non-profits or government sponsored entities. Our impact mission is broader… to have a positive impact on the way capitalism is practiced… to help make it more defendable and more readily embraced as the best system for alleviating poverty and improving living standards.

 

Do socially responsible investments cost performance?

 

The evidence here is mixed. Our own research has shown that ESG is more about risk mitigation.  It also shows the multi-stakeholder operating system (MsOS) alpha comes primarily from culture, branding, innovation, and other intangible factors, but outside the "ESG only" scope. 

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Does the MsOS system exclude certain industries such as tobacco, alcohol, carbon-based energy, or firearms?

 

The multi-stakeholder operating system (MsOS) does explicitly exclude tobacco companies. But MsOS applies to the broad market, and can help find the "most MsOS" company within an industry.