Sustainable Investing Becomes More Essential to Safety and Success
The role of sustainable investors just got way bigger, thanks to the US Supreme Court.
Let’s back up a moment. “Sustainable investing” can be motivated by many things. Some see it as a way for investors to express their values by putting money behind desirable businesses or economic outcomes. Others are more profit driven, as sustainable investing approaches have a strong long-term track record. But there’s one other role it can play: a force to hold businesses accountable for the impact of their operational practices.
That is a role the U.S. Supreme Court pushed to the forefront in its June 28 overturning of the Chevron doctrine. The doctrine, in place since the 1980s, argued that when government regulation is ambiguous, it is federal agencies (like the SEC) that should decide on the specifics. In overturning the doctrine, the Supreme Court argued that any disagreement about the meaning of regulations should be decided by the courts.
Why does this matter to investors? Because, like it or loathe it, federal regulation plays a critical role in ensuring that public investment markets are reasonably fair and relatively corruption free. SEC rule setting helps set the guardrails for market behavior. Regulators are also needed to ensure that companies consistently report accurate information.
By reducing the power of regulators and vesting more power in local courts with varying experience and agendas, SCOTUS is essentially relying on investors to pay attention to corporate behavior and enforce accountability for damaging practices or dishonest reporting. Rachel Robasciotti, CEO of Adasina Social Capital, put it this way in a recent LinkedIn post: “Today SCOTUS ensured that no meaningful check on corporate corruption exists beyond investors.”
That’s a real concern. But, it’s a change that also highlights the advantages of sustainable investing.
Sustainable investors, whether individuals or institutions, use strategies that examine a wider range of data than traditional investors do. They seek consistent and transparent reporting. They may take an active role in voting company proxies. Sustainable models of investing uncover more information about business decisions that have the potential to be damaging or unsustainable.
In this way, sustainable investors and the mutual funds and ETFs they use provide an additional – and increasingly necessary – layer of protection against negative surprises, such as customer lawsuits, media exposes, and even total collapses. Not every sustainable investor is motivated by this role, but risk management is one of the most enduring benefits of sustainable investing. By investigating a wider range of company data and company behaviors up front, you are less reliant on regulators or courts to protect your financial and personal interests.
That’s a tremendous advantage, even before you consider the performance potential and values alignment that sustainable investing offers. And it’s an advantage that may become increasingly important for investors looking for sustainable ways to grow their money over time.
