What's in a Name?
We’re surrounded by people and institutions that seem to chase the sole objective of making as much money as possible, without considering the consequences their actions have on themselves and others - whether it is over usage of naturally occurring substances, improper disposal of toxic waste, exploitation of the workforce and general bad practices in day to day functioning.
Rupeeting is here with the mission of giving you an opportunity to invest in companies that combine their drive to make money with ensuring that their actions remain sustainable to the environment, people and principles involved in their business.
You don’t have to sacrifice on your returns to save the world.
You must’ve heard the acronym ESG floating around in recent times, which stands for Environmental, Social and Governance, the pillars on which the Socially Responsible Investing portfolio rests. Let’s dive into what each of these mean:
Environmental - This criteria fits companies that indulge in environment-friendly practices or how a company mitigates the risks that it might be inflicting onto the environment. Adopting renewable energy sources, sustainable waste disposal mechanisms, reducing carbon footprint and emissions, etc. - these qualify as environment-friendly practices that a company can imbibe.
Social - If the company donates to charities, encourages volunteership to assist the needy, and maintains healthy relations with its stakeholders and employees, these are considered socially responsible institutions.
Governance - A company that upholds integrity, honest and transparency in its daily dealings, without an ounce of illegality, is one that ties the two above factors together, creating a wholesome entity that strives on goodwill and best practice.
There are rating agencies such as Bloomberg that give these companies a score based on they fare in the above 3 segments. Our portfolio takes those scores into consideration and compare the company’s simultaneous ability to maximise profit, and invest in those companies!
Recipe for the Dough 💸
Among the list of candidates, eliminate those that don’t comply with the ESG criteria - oil & gas, tobacco, coal mining, etc.
From those that are remaining, group them according to their sectoral distinction in ESG terms - renewable energy, tech services, etc.
Identify the companies that rank high on the ESG scale among these segregated pockets.
Assess whether these companies abide by profit maximization standards that are backed up by growing revenues.
Rinse and repeat till a collated dream team is created that ranges across industries, fuelling diversification.
Prove that the strategy will flourish by collecting empirical evidence and testing it against a decade-long historical dataset.
Ascertain how many stocks of each company to invest by a process called weighting. We do this on the basis of market capitalisation, management quality, and their vision for excellence, backed by earnings.
Monitor their progress, or lack thereof and make adjustments to the portfolio accordingly (Rebalance).
Skin in the Game
Still aren’t convinced? Let’s take the example of global powerhouse from our nation that upholds pristine standards - Infosys.
Top employers of 2020 across multiple nations, and Infosys USA labelled a “Great Place To Work”, with a workforce that houses 144 different nationalities.
22% of the board house women and the company is one of the signatories of the UN Standards of Conduct for Business on Tackling Discrimination against LGBTI people
The company was one of the first in India to take a carbon neutrality pledge from 2011 and has achieved a carbon neutral stance 30 years ahead of their initial 2050 deadline.
Infosys is the world’s 3rd Best Regarded Company from a governance standpoint according to Forbes 2020.
Across the Indian campuses, they have built more than 35 lakes and ponds that facilitates rain water harvesting and has injection wells for usage of the water.
They spend over US$ 55 million a year on education, healthcare, rural development, destitute care and art & culture, and support the government in disaster relief programs.
💡 Apart from all this ESG goodness, Infosys is the 2nd largest software exporter of India. The stock is up 6X in the last 10 years. Perfect example of ESG principles + investing success.
If we need to pinpoint a singular incident of Infosys upholding their standards in the midst of adversity, the Vishal Sikka era comes to mind.
He resigned from the prestigious throne of the CEO after 3 years of his reign after a brawl between the independent directors of the board of Infosys and N.R. Narayana Murthy, the founder. Here are some of the tussles that took place between Infosys and Sikka:
Vishal Sikka was accused of chalking out a compensation structure of massive quantum (partially variable in terms of performance, Restricted Stock Units, and stock options) that amounted to a whopping US$ 11 million in FY17.
Various other senior management members were given a similar hike as incentives.
2. Panaya Scandal
A US$ 200 million acquisition of an Israeli software company named Panaya had come into light after certain whistle-blower reports suggested that the deal was overvalued.
Sikka, along with various key personnel and their relatives were accused of being instrumental and having benefited from this deal as they allegedly had indirectly invested in Panaya, pre-acquisition.
Rajiv Bansal, the CFO at the time, resigned and was set to receive a severance package of Rs. 17 crore, an unusually large amount.
3. Around the World
The founders of Infosys were sceptical of his oddly high number of privately-flown (chartered) international flights (800 hours worth).
Narayana Murthy was disturbed by the apparent atrocities towards the credibility of Infosys as the symbol of principles and transparency, and decided to set things straight:
Sikka stepped down as CEO, and various independent board members who were alleged accomplices to the poor governance practices resigned as well.
Nandan Nilekani, co-founder of Infosys took up the chairman’s position to course-correct the off-track principles that the company stands for.
Various external, third party investigations were appointed by Narayana Murthy to demystify the Panaya acquisition and it’s spill-over.
Management clean up and quick action from the board and founders resulted in the derailment being contained.
This clearly states that companies like Infosys validate their principles over making profits by unsustainable policies that do more harm than good. Our Socially Responsible Investing smallcase finds these companies and joins them in their efforts to create an ESG-centric approach towards making you money!
Meet Your Maker
Presenting - Dhiren Jain
He heads SP Jain Securities, which is a stock broker and money manager for the last three generations.
He studied finance in his undergrad, got a masters in finance and banking from the UK, worked as a currencies derivatives trader in the heart of London, and then came back to join his family business.
Forget the education and experience, he has been born and raised around stocks and money!
Piece of the Action 🍕
Want to be a part of our journey while knowing exactly where and why your money moves? Just click below and hop on aboard!