How ESG Funds Have Changed Corporate Behavior

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.