How ESG Funds Have Changed Corporate Behavior

You really can vote with your dollars, says Janet Brown of FundX

Janet Brown, president of FundX Investment Group, wants to spread the word that “there is a way you can vote with your dollar.”

“Consumer demand and money flows do really affect corporate behavior,” she told ThinkAdvisor.

At the end of March, FundX launched a new fund to help investors own funds with strong returns and robust environmental, social and governance (ESG) standards. The FundX Sustainable Impact Fund (SRIFX) is a fund of funds that’s “very actively managed,” according to Brown.

While for many years funds relied on divestment, Brown thinks a better approach may be to “put money flows with the companies that are trying to do the right thing.”

“[That] is a great step in the right direction,” she told ThinkAdvisor. “You maybe can’t be perfect about being super specific about either divestment or targeting specific things.”

And, it can have a real impact on corporate behavior, too.

According to Brown, the most important way that funds are making a difference is by tapping into their power as shareholders.

“When you invest in a company, you get a say in how that company operates: you can file shareholder resolutions to try to change how a company operates, and you can vote on these proposals at shareholder meetings, and that’s exactly what many funds do,” Brown wrote in a recent FundX investor guide. “They invest in a company with the goal of engaging with the company and helping it do better.”

In her interview with ThinkAdvisor and in the FundX investor guide, Brown discussed how fund companies have made a positive impact this way.

Investors filed more than 400 proposals just on environmental and social issues in 2015 alone, according to the U.S. Forum on Sustainable Investing

And, according to Brown, these efforts have led to some real results. Investors have persuaded hundreds of companies to make significant improvements.

For instance, Domini Impact Investments encouraged Target to reduce the use of toxic PVC plastic in children’s products.

As a result, Target today has a sustainable product standard that scores thousands of products based on toxicity. Other major retailers, like Walmart and Sears, soon followed suit.

“That’s a tangible example of how a mutual fund company really engaged with management, and because they put a lot of money in these stocks, they listened,” Brown said.

Brown also described how Trillium Asset Management engaged with Home Depot, which was one of the world’s largest retailers of old-growth lumber at the time.

“Trillium Asset Management engaged with them and brought to their attention that there is another way,” she told ThinkAdvisor.

Home Depot agreed to use more sustainably sourced wood, and by 2009, Home Depot had sold more Forest Stewardship Council-certified wood than any other company in North America.

Another example that shows funds’ potential impact is how Calvert Research and Management has achieved more efficient energy use.

Calvert has prioritized engagement with electric utilities, and 53 major corporations have committed to source 100% of their power from renewable energy in the next two decades.

“This is a way that we can encourage better corporate behavior,” Brown told ThinkAdvisor.

The Sustainable Impact Fund uses a comprehensive and rigorous screen of the mutual fund and ETF universe to find sustainable funds and funds with above-average ESG ratings. FundX includes funds dedicated to sustainable, responsible impact investing and those whose portfolios meet a minimum ESG rating.

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