ESG INVESTING

Aerial solar photovoltaic power station -An example of the E in ESG Investing

Riverwater Partners believes responsible investment or ESG investing is in the best interest of our clients, our firm, our communities and our society.  Therefore, we consider environmental, social and governance (ESG) policies, practices, and outcomes, alongside traditional investment criteria, when evaluating potential investment candidates.

As the only dedicated sustainable, responsible, impact (SRI) investment management firm in Wisconsin, the mission at Riverwater Partners is to make the world a better place by growing wealth through sustainable investing. We employ an SRI lens to select investments for client portfolios that focus on salient environmental, social, and governance (ESG) factors to align investments with values.

RESPONSIBLE INVESTING DEFINITIONS

There can be confusion among the different approaches to sustainable, responsible and impact investments. At Riverwater, our investments focus on ESG, socially responsible and impact investments.

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ESG INVESTING

The integration of environmental, social and governance factors in the investment process. Typically, this means investing in “best in class” companies within each industry. Exclusionary screens may or may not be utilized. Riverwater Partners seeks best-in-class ESG efforts generally.

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SOCIALLY RESPONSIBLE INVESTING

Typically, an “exclusionary only” approach to portfolio management that employs screens to avoid exposure to certain sectors/industries. Examples of excluded sectors/industries are, “sin” stocks, alcohol, firearms, pornography, and gaming.

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IMPACT INVESTING

Investments in public or private companies or other entities with a specific intention of generating social and/or environmental impact alongside a financial return. Direct impact investments are mostly found in fixed income strategies or private equity funds.

ENVIRONMENTAL
We target companies working towards conserving energy and using renewables in their supply chains while avoiding firms with a history of poor environmental practices. We encourage companies to both actively measure their total environmental impact and set sustainability goals.

SOCIAL
We focus on investing in companies that encourage diversity in their workforce, have the best health and safety records in their respective industry, and engage in active discussion surrounding human rights and community issues.

GOVERNANCE
Good corporate governance ensures fair treatment of shareholders, customers and employees. In this realm, we look for diverse boards among the talent, race and gender spectrums. We prefer to invest in companies with separate CEO and Chairman roles, well-aligned compensation structures, non-staggered boards and those that have instituted sustainability reporting.

RIVERWATER’S THREE PILLARS OF ESG INVESTING

We employ a three-pillar approach to evaluate ESG efforts of companies being considered for inclusion in client portfolios: Due Diligence, Engagement and Collaboration.

PILLAR 1: DUE DILIGENCE

Riverwater’s Due Diligence process seeks to understand a company’s attention to environmental, social and governance (ESG) factors, believing that a focus on ESG factors can shed light on potential risks and/or opportunities, which may impact people, planet and profit. We focus on those factors that are most salient to a company based on its industry. While we seek best-in-class efforts, we also invest in companies willing to engage regarding improvement.

We maintain a proprietary database of the ESG efforts of the companies in which we hold positions, those under consideration, and peer companies. Companies receive points for having a sustainability report, for inclusion in ESG Indices, and for the nature of their business being socially responsible, in addition to these ESG factors:

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ENVIRONMENTAL
We seek companies whose practices protect the planet.  We consider energy consumption, water use, emissions reductions, waste reduction, recycling programs and attention to supplier environmental practices.

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SOCIAL
We seek companies that value all people.  We consider fair treatment of employees, employee diversity, worker safety, product safety, supply chain human rights, and giving back to the community. We encourage companies to adopt policies and practices that treat all stakeholders fairly.

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GOVERNANCE
We seek companies with strong corporate governance practices.  We consider executive diversity, board diversity, independent board chair/CEO roles, executive pay tied to performance, and stock ownership requirements.  This diversity of thought and experience, as well as alignment of interests, ensures that companies work to protect people, planet and profit.

PILLAR 2: ENGAGEMENT

Riverwater engages with companies executives and boards to gain an understanding of their current attention to ESG factors and to encourage greater efforts. The overall goal of engagement, as with our other ESG efforts, is to generate positive impact to the environment and society, as well as superior financial outcomes. We engage with laggards to increase impact and with leaders to raise the bar. Click here to read our Engagement Policy.

Riverwater Partners documents and follows up on our engagement efforts. If a company is unresponsive or unwilling to improve its ESG efforts, we will consider selling our position.

Riverwater Partners votes proxies for portfolio companies according to our Proxy Voting Policy, which favors management and shareholder resolutions that align with our ESG views. Click here to read our Proxy Voting Policy. Click here to read our Proxy Voting History.

PILLAR 3: COLLABORATION

Collaboration with local, national and international responsible investment thought leaders informs our practice and strengthens our engagement.

Forum for Sustainable and Responsible Investment USSIF

US SIF: The Forum for Sustainable and Responsible Investment is the leading voice advancing sustainable investing across all asset classes.

Membership in US SIF informs our practice about relevant ESG factors by offering educational and engagement opportunities.

Principles for Responsible Investment

The UN PRI Principles of Responsible Investment  is the world’s leading proponent of responsible investment.

As a signatory of the UN PRI, Riverwater has formally committed to Responsible Investing. Our annual assessment informs and shapes our practice. We are proud to have received an A+ for our ESG Integration from the UN PRI and an A for Engagement.

Carbon Disclosure Project

The CDP Climate Disclosure Project is a not-for-profit charity that runs the global disclosure system for investors, companies, cities, states and regions to manage their environmental impacts.

Membership in CDP provides us with detailed information regarding the environmental efforts of many of the companies in which we invest.

Ceres

Ceres is a sustainability nonprofit organization working with the most influential investors and companies to build leadership and drive solutions throughout the economy.

Membership in CERES offers Riverwater additional information regarding environmental topics and how they relate to human rights.

The Green Masters Program is a recognition and assessment program for Wisconsin businesses interested in improving and being recognized for their sustainability initiatives.

Membership in Green Masters affirms Riverwater’s commitment to its own ESG efforts, providing opportunities to collaborate with Wisconsin-based companies regarding their efforts.

Through the lens of faith, ICCR Interfaith Center on Corporate Responsibility builds a more just and sustainable world by integrating social values into corporate and investor actions.

Membership in ICCR offers Riverwater significant resources on ESG factors, especially social ones. We partner with members in engagement.

Seventh Generation Interfaith

Through the lens of faith and the promotion of human rights, Seventh Generation Interfaith Coalition for Responsible Investment builds a more just and sustainable world for those most vulnerable by integrating social and environmental values into corporate and investor actions. Membership in SGI brings a regional focus to our ESG lens and collaboration efforts. SGI is a member of ICCR.

 

RIVERWATER PARTNERS’ SUSTAINABILITY REPORT

Our 2020 Riverwater Sustainability Report celebrates the power of resiliency. The report highlights the ESG efforts and positive impact of our holdings, how we engage with them to improve those efforts and our own sustainability efforts at Riverwater Partners. Click here for a .pdf version of our 2020 Sustainability Report.

ESG INVESTING AND FINANCIAL RETURNS

Some skeptics of ESG investing believe that one must sacrifice financial gain to achieve real economy gain; however, numerous studies have shown that companies that incorporate ESG policies and practices into running their businesses generate superior returns versus companies that do not.

We believe that these better business practices generally result in superior returns because:

  1. Increased revenue (as customers want to support the efforts), and/or
  2. Decreased expenses (as a result of lower energy consumption, for example), or
  3. Decreased potential liability (reputation risk), resulting in superior returns over the long term.

And this belief is backed by data. In fact, a recent meta-study of over 1000 research papers on the relationship between ESG investing and financial performance and found either a positive and/or neutral relationship between ESG and financial performance.

Click here to read more about debunking the myth of returns and ESG investing.

UNITED NATIONS PRINCIPLES OF RESPONSIBLE INVESTING

As institutional investors, we have a duty to act in the best long-term interests of our beneficiaries. In this fiduciary role, we believe that environmental, social, and corporate governance (ESG) issues can affect the performance of investment portfolios (to varying degrees across companies, sectors, regions, asset classes and through time).

We also recognize that applying these Principles may better align investors with broader objectives of society. Therefore, where consistent with our fiduciary responsibilities, we commit to the following:

Analysis

We will incorporate ESG issues into investment analysis and decision-making processes.

Disclosure

We will seek appropriate disclosure on ESG issues by the entities in which we invest.

Enhance

We will work together to enhance our effectiveness in implementing the principles.

Active

We will be active owners and incorporate ESG issues into our ownership policies and practices.

Acceptance

We will promote acceptance and implementation of the principles within the investment industry.

Report

We will each report on our activities and progress towards implementing the principles.