Hodges Capital Management founder Don Hodges may know his way around a balance sheet and a price-to-earnings ratio, but when it comes to investing in tobacco or alcohol manufacturers for any of his five mutual funds, Hodges just won't do it no matter how good the numbers look.
Why not? "My mother wouldn't like it," says the man who began his investment career in 1960 with Merrill Lynch, recalling that his mom and dad disapproved of drinking and smoking when he grew up in small-town Texas.
Similarly, Hodges notes, Hodges Capital today gets requests from clients, women especially, to avoid any investments in environmentally irresponsible companies. "More and more," he says, "We have people coming to us saying we don't want you to invest in this or that company because they're polluting and bad for the environment."
Across the U.S., as Hodges' experience attests, investors are putting pressure on firms to consider environmental, social and governance (ESG) factors when making business decisions. This is especially true of fossil fuels, suspected to cause climate change. The writer and environmental advocate Bill McKibben and his organization, 350.org, have spurred activists on more than 300 college campuses to demand that their schools divest the top 200 oil, gas and coal companies from their endowments.
Do Your Homework
As a result of the growing interest in this issue, wherever financial advisors and wealth managers might personally stand on the debate, many will field requests from clients about divesting from energy companies with exposure to fossil fuels. And for those advisors who are fiduciaries, doing some homework on this sticky subject might be a good idea before the next pro-divestment request comes in from a foundation, university or socially responsible individual investor.
A recent speech on climate change by President Barack Obama at Georgetown University suggests just how top-of-mind the subject of divestment has become, not just on college campuses but in communities nationwide.
"Convince those in power to reduce our carbon pollution. Push your own communities to adopt smarter practices. Invest. Divest," Obama said in his June 25 speech to a large audience. "Remind folks there's no contradiction between a sound environment and strong economic growth. And remind everyone who represents you at every level of government that sheltering future generations against the ravages of climate change is a prerequisite for your vote."
Dan Kern, a chartered financial analyst (CFA) and president of Advisor Partners, a Walnut Creek, Calif.-based firm focused on helping advisors with investment decisions, says divestment is "a big topic and a controversial point of view," and he notes that he schooled himself on the subject when a socially responsible client asked him about it.
