ESG investing was always a way to gather data

Patrick McVeigh has witnessed significant changes in the landscape of socially progressive investing, having been involved for over four decades. His career began in 1982 when the concept was still in its infancy and largely referred to as socially responsible investing.

Over time, the field evolved, but even back then, he was clear about the importance of integrating qualitative data into investment decisions. This qualitative data—what we now refer to as ESG (Environmental, Social, and Governance)—was largely ignored by traditional Wall Street approaches, but McVeigh believed from the beginning that these factors were crucial for a holistic understanding of a company’s value.

“ESG investing, to us, is simply a way of gathering data,” McVeigh, pesident and chief investment officer at Reynders, McVeigh Capital Management, tells IN. “More and more investors gather ESG data because it informs the investment decision.”

This is a crucial distinction for McVeigh, as he sees ESG not as a trend but as an essential part of investing. His belief stems from his early experiences with investing and the teachings of Benjamin Graham, who, despite outlining the importance of both qualitative and quantitative methods in investing, focused only on the latter.

“That’s where Wall Street went for the next 70 years—we’re going to ignore all that qualitative data, which today we call ESG,” adds McVeigh.

And the field has indeed progressed beyond just gathering data. Today, socially progressive investing involves pushing companies to adopt more responsible corporate behaviors, which McVeigh strongly advocates.

“Studies have shown that a company’s employee relations and their environmental impact and so on all have an impact on a company’s profitability,” he explains, underscoring the critical link between ESG factors and financial performance.

However, this momentum has not been without its setbacks. The current political climate has brought pushback, with legislative efforts in certain states attempting to curb ESG-based investing

“A large number of states have introduced legislation to try to restrict this form of investing,” adds McVeigh. “When things are successful, you often meet resistance.”

One particular trend McVeigh highlighted is the shift from simply collecting ESG data to proving that it has real-world impacts. Early in his career, companies were reluctant to disclose their environmental and social data. But today, almost all companies release some form of ESG information, which is a significant victory. Yet, McVeigh points out that clients now want to know if these disclosures are leading to actual improvements.

“Is it just data, or are they really improving?” he asks, highlighting the growing demand for accountability. This trend has become central in McVeigh’s approach to investing, moving beyond avoidance of harmful companies to finding and supporting those that are contributing positively to society’s future.

He provided a compelling example of the potential for corporate transformation through the case of Interface, a carpet company that made a radical shift towards sustainability in the 1990s. The company’s CEO had an epiphany after reading an environmental book, realizing that Interface was not environmentally sustainable and that changes were necessary for the company’s long-term survival, reflected,

“They figured it out, and now they have products… that result in less carbon in the atmosphere when they make it. It’s been key to their success as a company,” McVeigh reflects.

The future of socially progressive investing appears to hinge on this balance between proof of impact and financial returns. For McVeigh, these two aspects are inseparable.

“Our belief is these go hand in hand,” he says, citing his firm’s long-standing commitment to proving that values-based investing can deliver strong financial results. He emphasized the importance of identifying the issues that are most material to a company, both from a financial and social perspective.

In today’s volatile market, questions about balancing financial returns with a commitment to socially progressive values are more relevant than ever. But for McVeigh, this balance is not an either-or proposition. He sees ESG data as a fundamental part of good investing, ensuring that companies are well-positioned for the future.

“We feel we’re in a partnership with the companies,” McVeigh adds.

Yet, socially progressive investing is not without its complexities. One prominent challenge is the quality and accuracy of ESG data itself. McVeigh says recent controversies surrounding ESG ratings, specifically referencing Elon Musk’s criticism of the system when Tesla received a lower ESG score than Philip Morris, despite the latter producing a product that kills millions annually.

“I understand Musk’s position,” McVeigh says, acknowledging the imperfections in the current ESG rating system. He argued that the data is not always accurate, and this presents a challenge for investors trying to assess a company’s true impact.

Despite these challenges, McVeigh remains optimistic about the future of socially progressive investing. He believes that as the field continues to mature, it will become an even more integral part of mainstream investment strategies. The push for companies to prove their positive impact, rather than simply avoid negative behaviors, represents a significant shift in the investment world.

“Let’s find those companies who really are part of the future success of our economy,” tells IN.