Those who attended business school anytime in the past 40 years emerged with a concept etched on the most resilient part of our brains which forms the basis for the mother of all investment myths-that limiting the investment universe will limit the potential for investment return.
With virtually any active management strategy, the question is whether the investments being chosen (or eliminated) for economic, financial, social, or environmental reasons are likely to enhance returns or reduce risk.
The limited investment universe myth leads directly to the myth of underperformance. Fortunately, there is a significant body of empirical evidence that shows a clear and measurable link between intangible environmental, social, and governance factors (ESG) and bottom line financial performance.
The most ironic of all myths is wrapped in the belief that socially conscious investors are anti-capitalism. On the contrary, as owners of stocks, bonds and mutual funds, we are heavily invested in the market-based capitalist system.
Another persistent myth: it’s better to invest for maximum profit and then donate some of those profits to help organizations doing good work. Tell me, is a strategy of investing in a company with egregious environmental problems and then donating some of the profits to environmental causes more or less effective than withholding capital and working to improve the company’s environmental impact?
Even the largest companies run the risk of becoming extinct if they cannot adapt to a changing market environment.