Investing for Social Change

Appleseed Capital

8. Decent Work and Economic Growth 17. Partnerships for the Goals

Overview

Wall-Street is often criticized for failing to make considerations behind returning shareholder value; Appleseed Capital is an investment firm seeking to change that image through a different approach to evaluating potential investments and advising clients. As the first investment firm in Chicago to be designated a "B-Corp," Appleseed uses a unique ESG (Environmental, Societal, and Governance) metric to both evaluate good investments for their clients and lobby firms to make positive social changes

Authors

Amar Moolayil

Amar Moolayil

Peter Niro

Peter Niro

Douglas Kellermeyer

Douglas Kellermeyer

Alexster Callahan

Alexster Callahan

Shravan Khare

Shravan Khare

School

Case Western Reserve University - Weatherhead School of Management

Case Western Reserve University - Weatherhead School of Management

Professor

Scot Lowry

Scot Lowry

Innovation

Appleseed uses a different standard business practice compared to the average investment company within the United States by evaluating the ESG (Environmental, Societal, and Governance) score of each company it intends to invest in. As part of scoring each firm on the ESG metric, Appleseed researches each firm in order to determine if the firm is “forward thinking,” in the areas of Environmental responsibility, Societal impact, and Corporate Governance initiatives. A firm earns a high “Environmental” score by taking into account current and future environmental issues, and always seeking to reduce the firms overall impact. A firm can earn a high “Society” score by working to enhance safety measures within the company or seeking ways to improve human rights issues associated with some of its products or practices. Finally, firms that score highly on the “Corporate Governance” metric have management teams with incentives that align with shareholder interests, have diverse boards and leadership, and work to reduce pay inequality within the firm. As part of its ESG philosophy, Appleseed’s portfolio excludes any companies from the fossil fuels, alcohol, tobacco, gambling, weapon systems, or pornography industries.

Investing for Social Change

Inspiration

Appleseed partners with a variety of organizations seeking to advance sustainable, responsible impact investing, such as Green America, Divest Invest, and the Principles for Responsible Investment. In addition to these partnerships, Appleseed has used its equity position to lobby for commitments to ESG initiatives. For example, following a successful campaign in 2016 to change diversity policies on the executive board of Titan International, a large manufacturer of tires, Appleseed lobbied Titan to apply some more corporate governance best practices, including separating the Chairman of the Board and CEO positions. Appleseed was successful, and the CEO and Chairman positions were separated.

Overall impact

Beginning as the impact investing arm of Peking Singer before branching out as its own firm, Appleseed began with the goal of “bring(ing) the ESG model to the US” (Patrick Herrington, Chief Compliance and Operating Officer at Appleseed). The inspiration for Appleseed’s investment strategy is based on a commitment to integrity, putting clients first, and creating positive change in the world. The model is popular in Europe, where governments and clients are interested in the impact that their money has. Investing in companies with strong ESG scores is not only an intelligent financial decision but also promotes environmental and sustainability initiatives that directly align with two of the UN’s Global Goals for Sustainable Development – Decent Work and Economic Growth (#8) and Partnerships for the Goals (#17).

Business benefit

Appleseed argues that investing in firms with a strong ESG score is a smart value investing strategy because it mitigates preventable downside risk. As shareholders, Appleseed Capital actively advocates for ESG initiatives that engender sustainable value creation and a long term competitive advantage. Appleseed's disciplined approach to considering ESG criteria has contributed to an investing strategy that generated market-beating returns over the last decade. In the ten years ending 9/30/2017, the Appleseed fund investor class has generated an annualized return of 6.37%, outperforming the MSCI World Index annualized return of 4.22% over the same time period. By highlighting ESG criteria in its investment decision-making process, Appleseed can identify companies that are not only undervalued, but are also uniquely positioned to create a sustained competitive advantage by making positive contributions to society and the environment. The Appleseed fund's performance over the last decade supports the notion that companies with a responsible approach to ESG concerns can outperform the market and generate sustainable growth.

Social and environmental benefit

Appleseed benefits society and the environment by investing in companies with a demonstrated commitment to preserving ESG principles in its operations. For instance, The Appleseed Fund has invested depositor capital in New Resource Bank, a bank based in San Francisco, CA that is committed lending money to companies that make positive contributions to the community. According to its website, New Resource Bank primarily provides loans to non-profits, clean energy companies, organic product producers, and other companies with sustainable business practices. By investing in New Resource Bank, Appleseed is providing capital to sustainable business operations that ultimately benefit society and the environment. In addition, Appleseed reinforces social and environmental responsibility by actively advocating for sustainable value creation. For instance, as a Verizon shareholder, Appleseed proposed the company adopt clean energy goals that could cut costs and strengthen its reputation. The proposal did not pass with 15 percent of the shareholder vote, but Appleseed's emphasis on the company's climate strategy has highlighted the benefits of utilizing alternative energy sources, and opened the door for constructive dialogue among shareholders and management in the future.

Interview

Patrick Herrington, Cheif Compliance and Operating Officer

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Appleseed Capital

Appleseed Capital

Chicago, IL, US

Business Website: https://www.appleseedcapital.com/

Year Founded: 1990

Number of Employees: 11 to 50

Appleseed Capital is an investment firm based out of Chicago, Illinois. They are one of the few firms in the United States to use the ESG Metric in evaluating the firms they invest in and make a part of their investment products.