How Important is ESG Investing?

ESG investing — that is, focusing on companies that have responsible environmental, social, and governance practices — is a major focus among many investors these days. But how important should it be when evaluating potential opportunities?

In this Fool Live video clip, recorded on April 14, contributor Matt Frankel, CFP, asks Shark Tank stars Robert Herjavec and Daniel Lubetzky about the importance of ESG to their investing strategies.

YouTube video

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Matt Frankel: I wanted to ask Daniel about this in particular because your company, Kind, was probably one of the most socially responsible businesses I’ve ever heard of. How important is ESG investing? How important is that when you are evaluating deals?

Daniel Lubetzky: On Shark Tank or in general?

Frankel: In general.

Lubetzky: I often explain this, Matt. For me, the most important thing is like Robert alluded to and I alluded to: integrity, authenticity, truth, genuineness. Now there are so many companies that just slap [on] the “I have a social mission” because they think it’s something you need to check the box on, and if it doesn’t feel authentic, it actually turns me off. If there’s authenticity to a social mission, it turns me on a lot.

I did a deal on Shark Tank with Yellow Leaf Hammocks. I love those guys and their product is amazing. When Robert [came] to stay in my place, we have now Hammocks all over. That’s why they started the business, and you can sense that when they talk, they talk with so much passion. When it’s authentic, for me it’s a very added reason, and that was part of what drove me to invest in Yellow Leaf Hammocks. Also the fact that as a Mexican-born American citizen, for me I love Hammocks, and I find them magical. I do think they have a lot of innovation and a lot of potential in their product, but the social mission was important.

But second to that, I would rather invest in a company that doesn’t proclaim to have a high social mission, but they act with integrity, and how they do business is with good values, but they are very honest and authentic.

Then last, I would probably not invest — and I remember a couple of pitches that I was with Robert on where people pitched themselves, and Robert will know who I’m referring to, if he thinks so — there was a couple of guys that came on board and were not doing very well, so they started throwing out social mission claims, and it just didn’t feel right, and Robert caught it and he alluded to it. Really, you want to be authentic in whatever you do; I think that’s the most important thing.

But all things being equal for me, ESG is very valuable. If it really is an authentic part of the persona, and like Robert said, if you really care about something more than just “make money,” you’re probably going to have more staying power. It’s not just that you want to invest in those entrepreneurs because they’re trying to change the world, it’s that they have a higher likelihood to succeed if they have a purpose beyond making money. Because when you get hit with challenges, as you always will as an entrepreneur, if you have added reason to believe, you are likely to have more staying power.

Robert Herjavec: It’s a great point, Daniel. You said that so well, because that’s what people misunderstand. It is the “shark tank,” it’s not the guppy tank. I’m not investing in you because of your social mission, or because you want to do good; I don’t need you to have integrity because I’m on a holier-than-thou plane. It goes to exactly what Daniel said: “People with greater integrity have longer staying power.” Because business is about overcoming objections, and you’re going to get hit, you’re going to get hit every day. And eventually, if your only purpose is “got to make a buck, got to make it quickly,” it’s going to wear you down, and you need people that are going to stick it through. That was really well said, Daniel.

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