How did ESG shape your investment career?
My first job out of college was at a small research boutique that analyzed companies based on non-traditional measures of corporate performance, including environmental impact. When I moved to Neuberger Berman as an investment research analyst, I discovered that my questions could raise awareness of what matters to investors, and influence corporate strategy and disclosure. I chuckle today when I recall a phone call that I made years ago to the Investor Relations group of a major public company. When I asked for environmental information I was told, “You must have the wrong number.” Times have changed, and I like to think that we at Neuberger helped move the conversation forward.
Neuberger Berman is a place that truly values independent thinking. Its openness to innovation supported the development of our original “socially responsive” approach and encouraged our pursuit of the notion that investment returns are strongly influenced by considerations that extend beyond traditional financial metrics to broader measures of societal and environmental impact. Experience has reinforced this thesis and helped spawn a robust and dynamic framework for analysis and investment, which continues to inspire and challenge me two decades on.
What does “sustainability” mean to you?
For me, the term “sustainability” reflects a commitment to long-term value creation. Our team looks to invest in companies that can thrive over time because their business models and business practices reinforce and create lasting economic opportunity. This could take the form of productivity gains shared with employees and customers, corporate reputational strength, and innovative approaches to operational efficiency. Looking back on the history of our efforts, the common thread has always been this notion of sustainability.
We recently changed the name of our team from Socially Responsive Investing to Sustainable Equity. The new name, in addition to bringing us in line with current industry vernacular, also better reflects our underlying investment philosophy.
Has your investment process changed through the years?
At its core, fundamental research entails an essential focus on investigative hard work: financial analysis, management interviews, and the study of end-markets and competition. The Sustainable Equity team has always interweaved sustainability into its evaluation of investments as a determinant of quality. Our commitment is a constant, and our process consistently generates focused portfolios of 30–40 names.
Practically speaking, however, we now have access to a bigger toolbox. Investors’ growing awareness of the relevance of environmental, social and governance issues has spurred more corporate disclosure and fueled the availability of new ESG data sets. While we still lack standardized disclosure across the board, today, 85% of our investment holdings publish sustainability reports, offering a wide range of metrics.
We have embraced new sources of information, but we also recognize that each new data point demands a nuanced evaluation to best understand how it fits into our assessment of investment suitability. There are no simple formulas and no shortcuts.
In my experience, investment insights come from layering and integrating the most relevant and material information on top of a solid analytical framework. That’s how we can identify areas of structural growth and financial durability in an increasingly resourceconstrained world.
How do you engage management teams?
We always question company management teams about their commitment to and execution of sustainability programs: Which policies and incentives are in place to encourage good behavior? To what degree does the board exercise oversight? Company on-site visits help provide a real sense of corporate culture at the heart of an organization.
Although the broad lines of investigation have not changed, our understanding of what is material and what constitutes leadership within an industry is always advancing. It used to be having an environmental policy showed leadership. Now, leaders are innovators, willing to set science-based emissions reduction targets for example.
How would you gauge the progress of ESG objectives globally?
In the global economy, corporate sustainability and the implementation of ESG are driving tangible benefits, but there is no shortage of future opportunities. That’s what is exciting about being an investor in today’s environment: it’s dynamic, it’s changing.
For example, early in my career when I started tracking pollution from industrial production, I never thought I would see “closed loop” factories that recycle by-products to produce virtually no external waste. Yet, here we are. Overall global economic output has even become more energy efficient. If you look over the past several decades, the amount of energy needed to produce $1,000 of GDP is nearly half of what it used to be, according to the World Bank.
Unfortunately, sometimes progress can take longer than expected. When I joined Neuberger Berman, women represented 15% of board members at Fortune 500 companies. The good news is, today, that number has gone up to 22%, according to Heidrick & Struggles. The bad news is that it is meager progress!
As I learned at the start of my career, sometimes a simple phone call can fuel awareness and initiate change. I am gratified to say that today when I enquire about board diversity, I’m likely to have my call returned by a CEO or a board Chair. Fortunately, the days of “Sorry, wrong number” are behind us.
Finally, any thoughts on the next 20 years?
Twenty years is a long time and the world is changing rapidly through technology and innovation. At the same time, Pew Center estimates that we could add over 1 billion to the world’s population in the next 20 years and World Bank points to GDP growth in developing countries outpacing developed. This translates into demand for better standards of living for more people globally. In my view, corporations that address the unmet needs of society while adapting operations to meet the increased demand for sustainability will fundamentally be advantaged. It will be a necessity for investors to think critically about these issues.
Ultimately, the success of sustainability endeavors has to be grounded in integrity. When goals are based on shared principles applied consistently, then companies, investors and the global community all stand to gain.