Doing Well by Doing Good: Win-Win Investing Through ESG

Is it possible to do the right thing and come out ahead financially, too? The answer is a resounding yes.

To fully live up to its Buddhist principles and fulfill its fiscal responsibilities, the Board of Directors of BCA and its Endowment Foundation (BCAEF), as well as its investment advisor, Angeles Investments, are committed to making investment decisions with a focus on ESG (Environmental, Social, and Governance) factors. Each of these addresses non-financial aspects of businesses that a growing number of investors feel have a financial impact on corporate behavior.

We’re happy to report that this approach has reaped impressive real-world rewards: In 2020, despite the worldwide economic turmoil, BCAEF’s Growth Fund enjoyed a return 20.3% (net of Angeles’ fees), versus the benchmark return of 14.4%.

Let’s look at what these broad categories actually encompass. Environmental factors can include greenhouse gas emissions, air quality, and energy, water, fuel, or waste management. Social factors can range from human rights and community relations to data security, fair disclosure, labeling and marketing, health care access, and diversity and inclusion. And under the governance category would typically fall diversity of boards and personnel, shareholder rights, business ethics and transparency, and systemic risk management.

As a Buddhist investor, BCAEF recognizes the potential value in considering all of these factors in the investment process.

For this reason, we favor funds and strategies that make ESG a key part of how portfolios are managed, both for the sake of risk mitigation and as a source of market-beating investment returns.

BCAEF also seeks to invest in fund management firms with diverse ownership, investment teams and/or leadership, and a demonstrated commitment to diversity and inclusion in how they recruit and retain, and their employees and foster their career growth.

All the active fund (versus index fund) managers BCAEF uses explicitly integrate ESG into their investment process. (Managers can refer either to firms or to individual fund managers.)

And virtually all active fund managers have dedicated ESG teams, provide ESG reporting, promote corporate sustainability, and are signatories of the United Nations’ Principles for Responsible Investment, and use their power as shareholders to push for ESG change.

To ensure that the fund management firms we entrust with our investments are honoring their commitment to ESG, BCAEF requires Angeles Investments to report to the Board each year on ESG integration and manager diversity. Following BCAEF’s investment guidelines, Angeles examines how well they integrate ESG principles and uses these findings in their internal analysis and decision-making process.

Angeles regularly probes fund managers on the diversity of their staff, investment teams, and investment firm ownership, for example; they also evaluate progress towards increasing diversity, equity and inclusion (DEI) at individual firms and within the industry. While there is still room for improvement, across our portfolio, the percentage of diverse staff and investment teams has increased from year to year.

BCAEF and Angeles are committed to responsible investing, not simply for moral or philosophical reasons, important as they are, but also because we firmly believe that these practices bring superior investment results over the long term. So we’ll continue to consider ESG issues in our own internal investment analyses and decision-making, even as we monitor how investment managers are governing themselves, along with the concrete steps they’re taking to reduce their own carbon footprints, track and measure managers’ ESG integration and DEI goals, and measure and communicate their progress.

If your church or temple is interested in joining the more than 27 BCA-affiliated organizations who co-invest with BCAEF, please contact Hide Mizuno at hmizuno@bcahq.org.