Part II: ESG Success Stories; Looking Ahead

June 11, 2021

By Courtney Alexanderson

ESG-oriented asset managers are taking on new and more complex societal issues in venture capital and private and public markets while seeking to provide positive returns for investors. Part II of EisnerAmper’s two-part ESG blog series, below, provides examples of success stories and addresses some of the challenges and opportunities that ESG-focused managers face as they pave the way forward. The source of this information was gathered during a recent 100 Women in Finance webinar titled “What Does ESG Mean in 2021 and Beyond?”

ESG Success Stories

Across ESG investments, investment companies are becoming more active. As opposed to sitting in on a quarterly call, they are bringing in customers and sitting on boards, and they are assisting with the pairing of customers and technology. For example, rather than helping a restaurant change to an environmentally friendly plastic alternative, there is a growing focus on the large companies (e.g., UberEats) to affect change on a larger scale. How Women Lead launched a fund virtually during the pandemic, which shows both the demand and need for women investing. Black Lives Matter and the pandemic prompted companies to take a role in shaping society. There is a true need and desire by investors to promote social change. Diversity appears to be now where ESG was five years ago.

Biggest Challenges

Traditional asset allocation relies on a long track record, but ESG track records currently are fairly short. There are still rules preventing a large number of accredited investors from investing. There are still no ESG standards and no basic information related to ESG metrics. It is still hard to identify the “right” companies because information is limited. Although on the decline, greenwashing—the conveying a false narrative about how a company is environmentally responsible— is still a problem. Although increasing in numbers, there are still not a significant number of female-led companies. There are not many companies now that can check all the boxes; hopefully this will happen sooner rather than later.

The Future of ESG

The asset management industry will continue to better represent their investors as they serve and restore purpose and authenticity to ESG. All companies should apply ESG; it should be the norm. Diverse boards, too, should become the norm. Less than 3% of venture capital funds are allocated to female-led companies. Only 11% of decision makers are women. There needs to be a huge growth in this area. COVID-19 caused many women to leave the work force. Companies with women leaders tend to have more equitable compensation models as well as diversity on their boards.

Areas of Demand

University endowments are focused on emerging managers who integrate ESG. Students want change and diversity. Family offices are interested in ESG. Demand is not necessarily geographic; it is more about the people and what they are looking for. The older generations realize the impact of their investment strategies on younger generations’ lives (their grandchildren).

ESG as a Risk Mitigation Strategy

ESG should be more than a risk mitigation strategy; it should be the true mission of companies and their managers. It is very difficult to get away with doing wrong for very long, especially with social media scrutiny. Bad business practices just will not fly in this environment. Companies with greater diversity will be more successful; they are more likely to exhibit best practices, better decision making and more creativity.

Read Part I of EisnerAmper’s ESG blog series to learn about ESG approaches.

About Courtney Alexanderson

Courtney Alexanderson is an Audit Partner in the firm’s Financial Services Group with 20 years of experience in the audits of domestic and offshore hedge funds, venture capital funds, commodity pools, investment advisors and employee benefit plans.