Essex: It is important to have a framework to measure both the social impact as well as the financial impact of a company. Our thesis is that those companies that can provide solutions to our environmental challenges will grow faster and generate above average returns over time while improving our environment, reducing business risk for corporations, and generating greater customer satisfaction. Doing the right thing is better for returns.

Cornerstone: If investors take the approach that there is value in multiple forms of capital — financial, human, natural — they can embrace the concepts of truly maximizing profitability over the long-term. The stewardship of all the capitals will allow for shareholders, employees, and customers to participate in a “triple bottom line” and then some!

Zeo: We would argue that ESG investing does not need to be viewed as having multiple bottom lines. This implies that the efforts to behave responsibly are somehow not aligned with the financial bottom line of a company. Sustainable corporate behavior is not a choice between financial and non-financial bottom lines; the real dichotomy is between short- and long-term horizons. A management team prioritizing only short-term profits is doing nothing for a company’s future prospects and value; short-term profits are rarely so repeatable as to dictate value without taking into consideration longer-term risk factors. The key for investors is to focus on those ESG factors which are material to a company’s underlying performance and consider the long-term liabilities and short-term uncertainty that is created if that company does not behave in a responsible way. Then, we believe investors will see that there is still just one bottom line — it’s just a matter of whether one cares about that bottom line for one or two quarters or over a longer timeframe.

Hortz: What are some of the best ways you see that companies have been managing the balance between shareholders and extended stakeholders? Can you give us a few examples?

Appleseed: For years, it seemed like management teams saw sustainability issues as an annoyance and a threat to profitability. They felt that engaging on these issues would be detrimental to their shareholders and were combative as a result. However, there has been a notable shift in the conversation more recently. In years past, it was common for us to need to file a shareholder resolution and receive a significant vote in our favor from shareholders to push a company to come to the table on sustainability issues. However, companies today seem far more willing to talk about and actively address these issues without a shareholder vote. I think they are coming to the realization that addressing sustainability issues is actually in the best interests of all stakeholders, including shareholders and management themselves.

By way of example, last year we engaged with Air Lease, a major aircraft lessor. Air Lease has the youngest, most fuel efficient, and cleanest aircraft fleet of any major lessor in the market. We asked Air Lease to significantly enhance its disclosures around the various environmental metrics related to its fleet. Instead of brushing us off and forcing the issue to go to a vote, the company realized that such disclosures were good for all stakeholders and willingly overhauled its disclosures on environmental issues without ever taking the proposal to a vote.

Cornerstone: The most critical element for balance here, is an understanding that in the long-term, stewarding on behalf of all stakeholders (investors, employees, customers) is a self-reinforcing effort. Again, that is in the long-term. There are always near-term tradeoffs as capital is deployed but being transparent around those decisions will allow for progress. As an example, let’s say that Cisco decides to build a $2M education technology center in China. Some would argue that the investment makes no sense. Cisco would argue that they are opening a market and building the workforce of the future. Let’s say that Intel decides to spend $1B studying their supply chain down to the minerals mined. Some might say that that is not their problem, lntel would say that they are avoiding a huge risk factor.

Silk: Our focus is on Frontier Markets where companies have a natural focus on achieving larger economic and social impact including import substitution and innovation. Good examples include companies like Safaricom which has pioneered the telecom industry in Kenya and developed a unique payments platform called M-Pesa. Through its business and services, it has been able to transform the Kenyan economy and positively impacted Kenyan society. Companies in Frontier Markets have not always been effective in articulating their ESG/SRI strategies but are increasingly adapting and improving. Many firms have started to give special attention to social topics including community engagement and gender equality.

Zeo: The companies we have seen that best balance shareholders and other stakeholders are those for which the mandate to do so has come from their Boards. Ultimately, a CEO is hired and given a mandate by the Board, so until the CEO is incentivized or at least doesn’t feel disincentivized to prioritize stakeholders other than shareholders, we can’t have the confidence that such a balance will persist as part of the company culture.

Within our investment universe, one company that has done a great job of prioritizing employees and its local community in addition to shareholders is Caleres, a shoe manufacturer dating back to the 1800s. They have a long history of community engagement, for example, that dates back to a trust fund established by their founder in 1921. Another standout in this area is Clean Harbors, a hazardous waste disposal company, where their efforts around employee safety earned the company national recognition as a leader by the Occupational Safety and Health Administration.