“Ethical Markets highly recommends this interview on the launch of the new ETF “JUST” by our colleagues at JUST Capital, by Andrew Ross Sorkin and hedge fund executive/philanthropist Paul Tudor Jones, co-founder of JUST Capital with Deepak Chopra, Rinaldo Brutoco, and other advisors who also serve on our Advisory Board.
While, at first, we were skeptical that using polling of the US public could yield a workable set of indicators of what is a more JUST company, we were impressed that these surveys showed that fair pay, dependable, decent jobs, commitments to safe products, community involvement and good governance fit many of the over 30 years of criteria developed by the ethical responsible investing, ESG and impact movements which now represent $8.72 trillion in the USA and some $23 trillion worldwide.
Our Green Transition Scoreboard® 2018 shows a cumulative $9.3 trillion of private investments in green sectors worldwide since 2007. Along with the pressure from such investors and the NGO divestment movements, the UN’s Sustainable Development Goals (SDGs) and the disruption of traditional incumbent business models, finance is now boxed in on all sides, including by FINTECH start-ups, blockchains, cryptocurrencies and digitization.
Capitalism indeed is being modernized as Paul Tudor Jones advocates and as Brad Katsuyama is doing at IEX! We will watch the performance of the new ETF “JUST“, now backed by Goldman Sachs, as it joins the millions of other ETFs now in the market, which we worry might become another “bubble”. We hope JUST does well and succeeds to move the old capitalism another step toward the more inclusive, sustainable future we all need. We welcome comments from all our global networks!
~Hazel Henderson, Editor“
New Goldman Sachs Fund Will Track Paul Tudor Jones’s Feel-Good Companies
The spiritual guru Deepak Chopra had just finished teaching a class about ethics in business at Columbia Business School when he called the billionaire investor Paul Tudor Jones II in the fall of 2012.
“‘Listen, one of my students has got a really good idea,'” Mr. Jones said Mr. Chopra had told him. The student had posed two questions: “Why can’t companies be an instrument for goodness? Why can’t companies focus their capital — human and financial — on being a change agent for societal betterment, a change agent for justness?”
This was long before the E.S.G. movement — the focus on environmental, social and governance issues — became fashionable, and Mr. Jones was struck by the question. So he set out to answer it. Since then, he has built an entire foundation, Just Capital, around the idea and developed a series of metrics to measure corporate America on more than mere profits, using annual polls to determine what corporate practices, including how workers are treated and job creation, matter most to Americans.
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Up until now, Mr. Jones’s measure of corporate America was simply a list of companies, a ranking that he hoped would encourage chief executives to think more about doing right by society.
But now it is about to become a financial product.
On Wednesday, Goldman Sachs will jump into the social impact investing world, using Mr. Jones’s metrics to build a new exchange-traded fund.
The fund is a feel-good selection of Russell 1000 companies, tracking the top 50 percent of those in each industry based on Just Capital’s publicly available model, which scores businesses using a complex formula related to workers, customers, products, environment, jobs, communities and management. Only 6 percent of the calculation of the index relates to how well a company provides investor return.
Whether the formula is a winning one for investors is a bit of an open question. The fund would have outperformed the Russell 1000 by 3.47 percent over the past two years. That’s the good news. The bad news is there is no way to test the formula any further back, and each year, the index changes based on shifts in the polling. If Americans become more concerned about job creation and less concerned about worker pay, different companies could be included.
“We rank the companies as best we can,” said Mr. Jones, who became famous for shorting the stock market before Black Monday in 1987 and went on to found the Robin Hood Foundation, an antipoverty organization. “And it’s our best effort — it’s not a science. There are many different ways you can debate the decisions that we have had to make, and I’m sure it will evolve and we’re going to get better at it.”
So it’s a bit of a guess how well Just Capital’s index will perform over the long term, a point Mr. Jones acknowledges up front.
“I think it outperforms” similar indexes, he said. But he quickly warned that “when we get in a bear market, this thing is going down 95 percent of what the other ones are, too.” He added: “Let’s just all be honest about that. We are talking about relative outperformance.”
According to Just Capital, the companies in the fund outperformed the remainder of the Russell 1000 in a number of important, socially conscious ways: They paid 71 percent less in fines for consumer sales-terms violations and 94 percent less in Equal Employment Opportunity Commission fines, produced 45 percent lower greenhouse gas emissions per dollar of revenue, and created American jobs at a 20 percent greater rate. Investors will pay a 0.2 percent fee, which is about half the price of most other E.S.G.-oriented funds.
But Goldman Sachs and Mr. Jones aren’t selling the fund as a quick-buck way for day traders to beat the stock market.
Instead, it is being sold as a curated solution at a time when pension funds and other institutional investors are looking to shift their investments into socially responsible funds.
“We are seeing clients think about this product in different ways,” said John Goldstein, a managing director within Goldman Sachs Asset Management. “Some look to it as value-aligned market exposure, while others see a set of drivers of performance in a changing world.”
Whether social impact investing will turn out to be the most profitable way to invest has become one of the biggest questions within the investment world.
Laurence Fink, a co-founder of BlackRock, the largest investment manager in the world, with over $6 trillion under management, told chief executives in a letter this year, “To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society.”
Mr. Jones came to the same conclusion several years ago. He said he had been taken aback when he realized how a company’s stock performance correlated with how responsibly it behaved.
“I couldn’t believe it,” he said. The results were sufficiently profound to make him rethink his own business.
“I’ve got to think about, even in my own business, how I am treating my employees, how we’re running and operating this business,” Mr. Jones said. (Among other changes, he said, he and his management team recently tripled the amount of profits his investment fund pays out to charity.)
One major distinction between the new fund and the bevy of other socially responsible funds that have emerged is that it does not exclude any company based on a moral argument, except for tobacco. So the fund can include coal companies, for example, but only those that lead the industry based on his metrics.
No matter their industry, he wants executives and board members to be thinking: “What’s my environmental footprint relative to every one else in my field? Where are my best business practices relative to my competitor? Am I doing as good a job as I possibly can, or is there someone doing better?”
While it may be in vogue to talk about socially responsible investments, until they prove they can perform better over a significant period of time, it will be hard for even the most virtuous investors to plow significant sums into them.
For now, Mr. Jones is happy to get the conversation started.
“The corporate mission as practiced today was designed in 1970 by Milton Friedman, when he famously said the social responsibility of the corporation is to improve its products,” Mr. Jones said. “The biggest objective I think for those of us at Just is to begin the debate.”