Are companies that treat workers well and fight for social justice better investment bets?
That's the outlook from JUST Capital, a New York City-based independent research organization that tracks the ethical standards at big U.S. companies.
According to the company's recently released JUST Capital Index, over the past year, the 100 "just" companies (included in the report) delivered an average return on equity 24% over the past five years, compared to 16% for other companies in the Russell 1000.
"While equity markets hit a string of record highs in 2017, new analysis from JUST Capital indicates that investors can achieve even higher returns, and at lower risk, by investing in "just" companies that prioritize worker pay and treatment, product quality, customer respect and other issues Americans care about most," the JUST report states.
The companies in the index (three semiconductor companies, Intel (INTC) , Texas Instruments (TXN) and Nvidia (NVDA) , top the 2017 rankings) are deemed as companies "that not only do well financially, but also do good according to the issues Americans care about most," the report noted.
On average, the JUST Capital 100 companies tend to take the following steps, according to the report:
- Pay their median U.S. worker 33% more than other companies in the Russell 1000
- Are more than 10 times likelier to have conducted gender pay equity analyses
- Face 74% fewer employment discrimination cases per dollar of revenue, and pay 99% fewer fines to the Equal Employment Opportunity Commission per dollar of revenue
- Face zero Consumer Product Safety Commission or FDA fines
- Face 83% fewer customer discrimination controversy cases per dollar of revenue
- Use 74% less electricity, 80% less fuel, 87% less water and emit 72% fewer GHGs per dollar of revenue
- Employ on average 38% more workers in the U.S.
Do financial professionals buy into the notion that companies who operate at a high ethical level perform better, market-wise, than companies who don't measure up?
In many cases, yes -- especially when it comes to younger consumers.
"Investing in companies that are making ethical choices within their companies is great for building loyal consumers," says Jordan Howard, a social impact expert and Next Gen strategist for major corporate brands. "Not only are the millennial and Generation Z consumers with their $134 billion in buying power causing a shift in values, the investors are now millennials as well."
Jordan says that 79% of millennial investors identify themselves as impact investors, investing in companies because of their social, political and environmental values. "Even if a company has high financial gain, most millennials would not invest unless the company practices ethics from the inside and out," he says. "This upcoming generation understands that they no longer have to choose social impact over financial gain, they can have both."
So-called "good citizen" companies don't base their entire business philosophies on issues like corporate altruism and high worker pay, for example. But creating high ethical standards is a priority for them.
"Companies that are deeply on this path see employee practices as one leg of a strong piece of furniture," notes Shel Horowitz, a profitability consultant at Green and Profitable, in Hadley, Mass. "They also look at such deeper issues as how to turn hunger and poverty into sufficiency, war into peace, and catastrophic climate change into planetary balance -- and how to make a profit doing so."
Others say high standards are great, but calling it an investment concept is a reach.
"We prefer to invest in value-conscious companies that also make sense from a fundamental bottom-up stock-picking sense," says Anna Dunn Tabke, principal director of research at Alpha Capital Management, in Atlanta, Ga. "We want to know if the company is overpriced in the stock market relative to intrinsic value, and what the long-term picture of growth and cash flow looks like."
Dunn Tabke says her firm's managers integrate corporate values with investment concepts, but she's not sure JUST Capital is doing the same. "Just Capital looks like it only ranks companies based on other factors that its surveys demonstrate are important," she says.
"It reminds me more of the "Fair Trade" label in coffee than it does an investment concept," Dunn Tabke adds.
Sure, it's wonderful so many companies are taking forward steps on key social issues like equal pay, family leave and workplace discrimination. Those companies tend to do other things well, too, and are worth any look as an addition to your portfolio.
Just do yourself a favor and check with an investment professional before you start cutting any checks -- they'll know whether your company is a money-maker, as well as a forward-looking, ethical company.
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