Geeta Aiyer founded Boston Common 18 years ago, long before investors were eager to embrace environmental, social and governance criteria in any country, never mind the U.S. The firm, which manages $5.7 billion in assets, serves endowments, foundations, families, pension funds and mission-driven organizations. Based in Boston, Aiyer’s firm helps clients dedicated to sustainable enterprise carry its goals and ethics through their investment portfolios.
Has the recent demand for ESG investments in the U.S. over the past 18 months surprised you in any ways?
I’ve been surprised it took a pandemic to get to this point and am interested in the domino effect we’ve seen. Select people were talking about this before, but now it seems like everyone wants to be inside this tent, be it because of pressure to get on board or with genuine intent. This is what tipping points are about.
My team and I have been investing using ESG as a core tenet since 2003. In some circles we were seen as activists or irrational actors when we brought these concepts to active investment management, but more and more people are recognizing these factors are integral to assessing risk and opportunity in publicly traded companies. It took this year of COVID-19 to bring home the idea that inequality, health, and our planet are interconnected, that problems like climate change, gender and racial inequity are systemic, and that fixing a deeply flawed system will take more than cosmetic changes. I think more investors have begun to realize they have within their power a means to make a difference—that their savings and assets can be part of the solution.
What are the values-based themes that you find investors are seeking most?
Increasingly, investors realize that there’s no sustainability without finance and no finance without sustainability. Products, processes, and policies are intertwined, from what companies make to how they make it to how they run their firms. Investors are bringing these themes home by focusing on the supply chain, the market value chain, and the participation of companies.
It wasn’t long ago you’d have lists of ESG leaders without regard to the products they make; or Green ETFs that were ranked without regard to how they do business, their sourcing decisions or employee practices. Now, more investors are aware that you can’t separate these things. These goals must be aligned.
How can advisers protect themselves from falling for greenwashing?
As an analyst, I was taught to consider and ask “What is a company not telling you?” It’s important to look under the hood: have conversations with companies, look at specialized sources of information, and use your judgment. If something looks too good to be true, seek corroboration from another source.
Greenwashing is deeply problematic and deserving of the criticism it receives, but it’s also an indication that people think ESG metrics are important enough to want to look good on them! Never underestimate the impact of peers and a shared ecosystem as ways to make change happen. Our goal has always been to create the conditions for self-sustaining change, and, hopefully, a “race to the top.” Hopefully we have all pivoted, and there is no going back! That is a good problem to have!
Your firm has been very effective working with companies as shareholders. What kind of power do you think shareholders as a whole have and do you think more are ready to use it?
Some shareholders are being very tenacious, proactive, and creative. But all shareholders aren’t using the power available to them. Companies should be managed for the long-term horizon, but the pressures of near-term incentives make this difficult. As investors, our time horizon is often very long by comparison. Investors cannot be separated from fiduciary duty—we can’t sit on the sidelines believing that management knows best and leave them alone. We need to align a company’s time horizon with that of the beneficiaries on whose behalf we invest.
The risks we face cannot be divested away. Shareholders need to be “impatient long-term investors.” Back-end loading net-zero plans to 2050 isn’t going to cut it when the problem is so urgent. We need to act now, with much greater urgency and scale.
How are the ratings agencies doing when it comes to ESG?
They are increasingly providing new and more meaningful data sets, especially as companies are disclosing more. The raw data can be informative. The composite “ratings” that these vendors come up with however, are often too heavily relied upon by some investors. At BCAM, we use the data and are aware of the ratings by these groups, but we rely on our own research process and decades of expertise in forming our opinion on a company.
What should investors expect out of the COP26 climate change discussions in November?
I want to see a recognition of the incredibly small window for action that exists, and a seriousness of intent coming out of COP26. Announcements are insufficient; we need to act, to follow through on prior commitments with Paris and continue to raise ambition and action from country-level actors. Even last year, when we had the most pervasive lockdowns, carbon emissions only went down by 7%. That is what’s going to be required every year if we are serious about reaching our reduction targets.
The energy transition requires us to rapidly make really drastic changes that are critical to our future, while also maintaining an inclusive society with growth and opportunity for the present. It’s like trying to tie your shoelaces while also walking across a tightrope! Many new ways of thinking and acting are called for.
Could you offer a few suggestions?
We need to raise our ambition and stop trying to be “efficient” and “cost-effective” at a time of crisis. We also need what we call “co-opetition:” collaboration between competitors because we share an objective that is bigger than our own market share. In the COVID-19 crisis for example, we didn’t ration capital and only allow, say, Moderna’s lab to do this work and deliver the vaccine. We had hundreds of efforts and are more resilient for having many possible solutions. And we found ways for competitors like Merck and Pfizer to combine forces to bottle the vaccine into vials and scale up production quickly.
Now is the time to go all in at COP26. That’s the kind of action I’ll be looking for.