Morningstar - Q4 2022 - 58

Investors
These funds' fees and their performance is far
worse than the equivalent BlackRock ESG
funds, for example. They're charging a lot of
money without a lot of performance to embrace
" anti-woke capitalism. " It's fascinating to me
that one approach to this idea that we shouldn't
be investing in ESG is to say that we should
be investing in anti-ESG. That sort of justifies ESG.
Hale: Global capitalism is evolving away from the
shareholder primacy paradigm. It feels like virtually all
corporates have burgeoning ESG programs.
Whelan: Investor pressure has been part of
that shift. It's not the only one. We do research
around consumer purchasing of sustainable
products. There is a 32% real premium and growth
associated with more sustainable consumer
packaged goods, for example. There's also
significant pressure by employees. If you want to
win the war for talent, this is an increasingly
important way to do that.
Unfortunately, that investor pressure sometimes
results in corporates ticking the box on a
bunch of ESG metrics as opposed to developing a
strategy to drive better impact and better financial
performance. Investors that understand the
underlying dynamics-like Generation, Parnassus,
Brown Advisory-offer more robust engagement.
Bioy: I'd add regulation to this. Some of these
companies operate globally, in markets that have
their own regulation and culture. Companies
that don't comply with local environmental and
social standards automatically lose their license
to operate in that particular market.
Krosinsky: The SEC's proposed climate disclosure
rule has, in our view, woken up companies
and investors to thinking about strategy. There is
a pathway from requiring data, reporting, and
transparency to more action.
The existing ESG data is also helpful for ensuring
that companies know they're being observed
by the market. That makes them think about issues
they need to manage for if they haven't been
doing so, such as diversity, equity, and inclusion.
The aggregate of ESG data is something
of a potential red-flag indicator for investors.
And the race for talent is real. Companies know
that if they're going to attract and keep talent in a
time when young people are bouncing from
job to job, then they better provide an environment
where people feel like their jobs have meaning
and purpose. I think this is true at a country
level also. If the United States goes in the wrong
direction on ESG, we may well become less
competitive economically going forward.
[A]nti-ESG funds ... [are] charging a lot of
money without a lot of performance to embrace
'anti-woke capitalism.'
Tensie Whelan
58
Morningstar Q4 2022
Hale: There is a generational component to this.
The leading edge of millennials are pushing 40. They're
becoming decision-makers at corporates and
institutions. What do you see from the college campus?
Whelan: Stern did not have a sustainable-business
program seven years ago, and now I have
students from all over the world. And I get a lot
of executives who are trying to make a pivot
or want additional skills for the work that's needed
today. Material ESG issues are relevant for all
industry sectors, for all positions, whether you're
in accounting or procurement or marketing
or brand management. For example, we worked
with activewear company REI to understand the
Morningstar - Q4 2022

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