About episode
Today’s episode focuses on environmental, social, and governance (ESG) investing. What began as a fringe interest in socially responsible investing grew at an astonishing rate and is now completely mainstream, considering the ESG performance of companies. According to a PWC report from last November, ESG investing will grow over the next three years to reach over $30 trillion dollars. That’d be over 20% of all assets under management and a real force in influencing how well companies act on climate change, amongst many other issues.
But ESG can be messy and confusing. To learn more about what it actually is, how it’s distinguished from impact investing, why it became politically controversial in the US last year, how it’s performed for investors, and how it’s likely to change in the future, I sat down with James Stone, VP of ESG Research at Baron Capital. Jamie offered a really clear overview and I learned a ton. Hope you enjoy this one as much as I did.
In today’s episode, we cover:
- [3:23] James’ background & his experience with ESG investing
- [5:23] Baron Capital & what they specialize in
- [6:33] The ESG market today & trends
- [9:53] Overall interest in ESG investing & how it’s been changing in recent years
- [11:03] Who is actually interested in ESG investing
- [14:44] Baron’s ESG commentary & the World Economic Forum study on top global risks
- [20:26] The positive feedback loop due to growing ESG investors & capital deployed
- [25:09] The impact of policy developments related to climate investing within ESG
- [27:49] The political backlash & controversy of ESG
- [31:22] The impacts of ESG investing on companies
- [33:46] The SEC climate disclosure rule change
- [35:17] Policy developments that Jamie is watching for this year
- [35:41] Thoughts on the ESG investing opportunity this year & longer-term
- [36:45] Things for climate-focused investors to consider
- [38:40] How listeners can get involved
James’ background & his experience with ESG investing
Jamie has an intriguing background that led him to become the director of ESG research at Baron Capital. He began his career in the late 1980s at Kidder Peabody as a research associate and analyst covering energy stocks, and then went on to work as an energy analyst at various firms, including Schroeder’s and UBS, where he focused on oilfield services, equipment, and drilling companies. He later transitioned to the buy sector, working at a hedge fund for a number of years before joining Baron Capital in 2009. During his time there, he primarily served as their energy analyst and portfolio manager for a long-only energy mutual fund. Four years ago, Jamie shifted his focus from energy to ESG and how it would impact their portfolios in the future. Given his extensive experience in the energy sector, which was at the forefront of the ESG movement for many years, he felt confident in leading the company’s efforts in this area. Since 2018, the company has been incorporating ESG analysis into their investment process, examining non-financial risks such as the environment, human capital management, and governance. Rather than offering ESG-focused products or climate change strategies, they have focused on improving their overall investment process.
Baron Capital & what they specialize in
Baron Capital, established 40 years ago by CEO Ron Baron, is a growth fund manager that invests in exceptional and advantageously positioned companies worldwide. Their focus is on long-term, spectacular returns. They offer a range of mutual funds, as well as separately managed accounts for both individuals and institutions. Across all portfolios, Baron Capital adopts a consistent strategy of seeking out companies led by great leaders, that reinvest in themselves, have recurring revenues and treat all stakeholders ethically, which they believe will result in sustainable growth.
The ESG market today & trends
James says that the ESG market has seen a slowdown in terms of overall trends and attention from investors and governments compared to recent years. However, ESG and sustainability products still saw positive flows of around $80 billion last year, according to Morningstar. The rate of growth has slowed down, but ESG strategies are still gaining market share. In addition, last year ESG came under scrutiny politically with some people viewing it as a tool to advance a social agenda. Jamie also mentions that ESG got some blame for some of Europe’s policy mistakes in their energy strategy, which has exposed them to risk in 2022. At its core, ESG is about understanding risks in investment, whether it be environmental risks, human capital management, or corporate governance. James pushes back on those who view ESG as a political movement and believes it is about owning good businesses that treat the environment, customers, and employees well, and have good corporate governance structures.
Thoughts on ESG investing opportunities for this year & longer-term
According to James, the ESG investment sector is going through a change with a division between the integration and impact crowds. This year, there will be more clear labeling of funds due to the EU’s sustainable finance directives and the SEC, giving investors a better understanding of what they’re investing in. With more private capital focusing on energy transition and funds flowing out of government programs, there will be more opportunities in ESG investing. The biggest trend, however, is a clearer understanding of what the products are and long-term investment opportunities.
Resources Mentioned
Connect with James Stone
- Connect with James on LinkedIn
Connect with Jason Rissman
Subscribe to Invested In Climate
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