Not every company survives the information gathering process.
“Equifax was another company we used to own; we divested after that scandal hit,” said Allen, referring to a major cybersecurity breach at the firm. “We didn’t think there were enough redeeming qualities left in the company.”
Parnassus has meanwhile proactively engaged with companies such as Disney to discuss ESG topics.
“It helps to have a big stick,” said Allen. “If you don’t have a big stick, I suggest you use carrots.”
Companies are pressured by non-governmental organizations and public campaigns all the time, said Allen, giving impact investors an opportunity to consult and offer their expertise. For example, Parnassus has helped its portfolio companies understand requests for transparency on environmental performance and sustainability. (As You Sow, a non-profit firm working in areas of investor advocacy and corporate responsibility, is a company that makes such requests.)
Beyond its flagship fund, Parnassus has a second popular strategy, its Endeavor Fund (PARWX), which is up 13.9 percent year to date. Endeavor overweights companies that score highly on workplace factors such as employee satisfaction, labor relations and safety.
“We integrate ESG research in house, and they’re combined into our mission,” said Allen. He said the ESG lens is used on companies to understand and dampen their risk.
It Pays To Be The Good Guy
Appleseed Capital is a value manager built around a separate account business for Chicago-area families. In 2006, the firm launched a go-anywhere value-oriented, socially responsible mutual fund, the Appleseed Fund (APPLX), which was up 10.3 percent for the year as of October 24. It screens out alcohol, tobacco, firearms, gambling and pornography—anything that its investors might find morally offensive.
“The SRI aspect started as part of our mutual fund, but it now goes across our business and is part of our investment process,” said Matt Blume, director of ESG research and shareholder advocacy at Appleseed.