Innovation

According to an article published by Forbes, "77% Of People Want To Learn How To Live More Sustainably." However, most people need to learn how to make a difference. ESG provides convenience, information, and accuracy to help investors engage in sustainability and make a difference. Funding for the firm for ESG is based on the investors who invest in companies who support this innovation. Olachi states, "It's (ESG) been 15 years in the making, and they (Brown Advisory) eventually combined with the Winslow team, and that kicked off the journey they have been on that brought them to where they are now. It has grown exponentially from where they started and continues to grow across all their client bases."

Many companies will come to firms with ESG policies and ask for honest feedback and analysis of what they would need to do to become a company with high standards in ESG that clients are willing to invest in. The employees of the firm and internal stakeholders are incredibly well-versed in this subject matter and help communicate this effort to their clients, who are the primary external stakeholders by investing in these companies. ESG is directly linked to UN Sustainable Development Goals, as shown in the infographic below.

Olachi, a portfolio manager at Brown Advisory, helps engage clients in many different ways; since ESG is becoming more influential, companies focus more on sustainability. She helps her clients see what sustainability means to them. Brown Advisory evaluates public companies to determine the ESG score and, ultimately, their impact on the community through management calls, annual reports, carbon disclosure projects, industry journals, sustainability disclosures, third-party research, and proxy statements to seek sustainable opportunities to potentially earn capital as paraphrased on their Brown Advisory 2019 Global Leaders ESG Transparency Report.

Inspiration

The inspiration for the beginning of this innovation was through networking with a group called “Winslow.” In 2009, Winslow Management Company, based in Boston, joined Brown Advisory. This firm had been investing successfully in companies that were providing viable solutions since 1983 and even trademarked the phrase “green investing.” Brown Advisory became attracted to this company because of its successful record of investing compared to a mainstream performance benchmark versus an approach that was only benchmarked against SRI funds.

How did innovation emerge for this organization? It started as a client-driven product. Brown Advisory is not a one size fits all investment firm. Solutions for what all clients want were realized about 15 years ago. Companies more recently have acknowledged that sustainability was a turning point for investors.

Overall impact

Brown Advisory firm evaluates and recommends sustainable investments for a better future for its clients and our world. Brown advisory’s ESG sector is replete with several positive impacts. The ultimate goal is to create a sustainable way to invest environmentally and socially. This is beneficial not only for short-term change on our planet but also for our future as well.

Within the social aspect of ESG (Environmental, Social, and Governance) Olachi also emphasized how ESG supports companies with gender equality and non-discrimination. A growing driving force of ESG is the spreading of financial literacy among girls. In the past, investments were primarily made by men. Bridging the gap between gender inequality through educating girls on managing and investing their finances supports the 5th and 8th UN Sustainable Development Goal of gender equality and decent work and economic growth. But this is for everyone, making it exceptionally important for long-term investments that anyone can manage.

Business benefit

ESG has led to increased revenues in Brown Advisory. According to Brown Advisory’s 2021 PRI Assessment Report, Brown Advisory’s return score on sustainability is higher than the industry average. For example, Brown Advisory’s hedge fund score is 92 compared to the industry average of 34. Olachi states, “It's been 15 years in the making, and they eventually combined with the Winslow team and kicked off the journey they have been on that brought them to where they are now. It has grown exponentially from where they started and continues to grow across all their client bases.”

Furthermore, the fund invests at least 80% of its net assets in equity securities of sustainable domestic companies. Investments aligned to ESG factors surged to $4.3 trillion last year from $569 billion in 2010, according to the US SIF Foundation, a Washington-based trade association promoting sustainable investing, of which Brown Advisory is a member. As for performance, according to U.S. News, the fund has returned -26.69 percent over the past year, 9.18 percent over the past three years, 12.95 percent over the past five years, and 14.36 percent over the past decade. After all, ESG is becoming a prominent factor that investors consider when deciding where to invest their money.

Social and environmental benefit

ESG benefits are palpable within society and the environment. One way is that ESG impacts natural resources, including energy consumption, air emissions, and waste management. Through its influence on companies, ESG is increasing accountability and corporate transparency. It empowers consumers to make more sustainable decisions about the products they purchase and the companies they support. This innovation also benefits society through the help of the youth, telling the older generation about the positive impact these companies have because of ESG investing.

ESG is helping to reduce deforestation, minimize water waste through better irrigation practices, and create a circular economy. ESG has also impacted economic growth by creating more than 90% fewer carbon emissions per unit GDP across 25 OECD countries over the past 40 years. Consumers find this innovation vital because it gives them confidence that the company they spend their money with is socially responsible. This serves as just one of many reasons why transparency is such a primary key. In the long term, Brown Advisory believes that the best solutions to environmental challenges will come from well-managed companies that perform well against their peers.

Interview

Olachi Opara, Portfolio Manager