ESG Is Still a Dirty Word to Some, But Erika Karp Thinks It Shouldn’t Be

As all investors seek to understand the risk-adjusted returns in an investment, Cornerstone’s Erika Karp can’t believe more haven’t embraced ESG analysis.

Erika Karp (Courtesy Photo)

Erika Karp

(Courtesy Photo)

In the run-up to the inaugural RIA Intel Awards on September 14, 2022, RIA Intel will publish Q&As and other short features highlighting the accomplishments of this year’s nominees and Rising Stars.

As the founder and CEO of Cornerstone Capital Group, Erika Karp has been lauded for producing groundbreaking, transformational work. Worth magazine said she is “changing the world.” Her institutional investment background, sales and trading heritage, and a commitment to being a “systems thinker” has allowed her to connect investment opportunities with her personal values and inspirations. Now a finalist for ESG Advocate of the Year in the inaugural RIA Intel Awards, Karp spoke to us about her vision for a global economy that transitions from one that is extractive to one that is inclusive, regenerative, and seeks to drive global prosperity for all (polar bears, tigers, and elephants included). The interview has been edited for clarity and length.

You’re nominated for your advocacy in ESG. What sparked your belief in ESG analysis as a critical input to investment decision making?

To me, it seems blindingly obvious that an investor would want to know more about material ESG factors that go into the mosaic of a good investment process. ESG analysis is about a holistic understanding of the risk-adjusted returns inherent in a potential investment. To not go down the avenues of inquiry that will ultimately impact revenues and costs makes no sense at all. ESG analysis absolutely need not be ideological, political, or divisive. It does, however allow investors to better align their portfolios with their values if they choose to do so. In fact, there is no such thing as “ESG Investing,” but “ESG Analysis” is the thing!

Can you tell us about your advocacy efforts?

My advocacy work has always related to leading and supporting organizations and initiatives that are involved in structural change and progress. As a practitioner in the investment business, I hope to be more than a voice for change, but rather actually drive the change. Engagement with organizations such as the Sustainability Accounting Standards Board/International Sustainability Standards Board, the World Economic Forum, the UN Global Compact, and the Clinton Global Initiative has allowed me to help push the ESG analysis work forward by understanding the levers that can drive investment decisions.

How has ESG changed since you began your career?

For the past few decades, the field of sustainable investing and ESG analysis was seen as ideological, political, and divisive. Now, it has become much more pragmatic and thoughtful as an enhanced analytical discipline, and this is precisely what we’ve been fighting for. In the final analysis, all those terms we’ve used, like Sustainable Investing, Impact Investing, Socially Responsible Investing, Values Based Investing, Double and Triple Bottom Line…it’s all just investing. And by the way, it’s important to remember that ALL investments have impact; it’s a matter of knowing if that impact is positive, negative, or even conscious.

What are the biggest challenges in ESG right now and what can be done?

The current backlash around “ESG Investing” is powerful, and to put it mildly, misguided. Why would an investor want less, rather than more information that is material to investment outcomes? Why would an analyst not explore important avenues of inquiry that impact costs, revenues, and risk? There is a massive consciousness raising effort that must be made in a pragmatic and non-ideological way. All the negative attention right now is because the ESG field has been coming into its own, and coming into the mainstream. We are winning a hard-fought battle based upon the reality of investment research. There remain challenges, of course, but remember, the dinosaurs did ultimately become extinct.

The inaugural RIA Intel Awards is a celebration of financial advisors, wealth management firms, and industry leaders. Winners will be on announced on on September 14, 2022 and will be honored in-person at upcoming RIA Institute Forums.

Benjamin Lev is a freelancer at RIA Intel and based in New York City

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