Asset managers running environmental, social and governance (ESG) strategies have always contended with skeptics who argue that creating impact requires a sacrifice of returns.

Now they’re punching back.

According to presenters at the sixth annual Impact/SRI & ESG Investing track at Financial Advisor's Inside Alternatives conference in Denver, ESG strategies can produce multiple opportunities to mitigate risk, generate enhanced returns and produce impact.

“It’s an elevation of our game,” said Robert Smith, president and chief investment officer of Sage Advisory. “We’re not constrained by this in any way, shape or form. We want to be informed and engaged, we want to be enlightened investors, and we believe ESG analysis does this. This is just good business.”

In Monday’s “Segregations” discussion, leaders from three leading ESG firms explained how they’re creating both financial and ESG returns for their clients.

Wielding The Big Stick

“The mission of Parnassus Investments is to build wealth responsibly for long-term investors,” said Benjamin Allen, Parnassus’s president. “The way we’ve been able to do this is to balance principles and performance.”

The firm is an impact investing success story. Founded in a basement in 1984 as a fledgling value manager, Parnassus now manages approximately $26 billion, mostly U.S. equities, in ESG mutual funds and managed accounts. Its flagship Parnassus fund (PARNX), which was up 10.8 percent for the year as of October 24, applies a qualitative ESG screen to a value strategy.

The flagship strategy has retained a large stake in Wells Fargo, taking on a role as impact investor as the financial behemoth deals with a scandal over the creation of falsified accounts. Allen noted that Wells Fargo has consistently been a leader in encouraging diversity, philanthropic engagement and environmental responsibility.

“It was an opportunity to make lemonade out of lemons,” said Allen of the Wells Fargo holding. Parnassus’s immediate response to a corporate scandal, he said, is to gather information and engage the troubled company, working as an investor to hold it accountable.

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