As high net worth individuals increasingly seek to align their investments with their personal goals, it’s also important to consider long term value creation. This is why having fact-based quantitative data is so important, as relying on subjective ESG scores and ratings simply won’t do.
As a Wealth Manager, you need actual insight into the ESG impact of your client’s portfolio to ensure that their investments are creating long term value. That however can feel impossible. Only a few fund managers provide impact reports, and even then it’s often a single ESG score or rating that is hard to decipher. At Impact Cubed, we’ve pioneered a way to empirically measure ESG impact, giving investors and managers factual, outcome-based data, in a way that makes sense to them.
We’re excited to unveil our individual investor impact report, specifically tailored for Wealth Managers. To bring it to life, we’ve analysed the ESG impact of the listed equity investment holdings of the four richest men in the world, including: Elon Musk (Tesla, Twitter), Bill Gates (The Gates Foundation), Warren Buffett (Berkshire Hathaway) and Bernard Arnault (LVMH).
We understand that ESG impact is multifaceted, which is why the report provides a comprehensive view of ESG impact across four critical themes: climate, nature, equality, and community. By examining each portfolio through these lenses, we provide investors with a nuanced and accurate understanding of its broader ESG impact, and a better insight into long-term value creation.
NB: The men selected were some of the richest businesspeople in the US and Europe. The top women will be profiled in our next wealth analysis.
Read our findings below
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Just some of our findings
Equality
Figure 1 The executive:employee pay ratio. Coloured bars represent the portfolios analysed, whilst the grey bars represent the respective benchmarks.
Fancy working 283 years to get paid as much as Musk does in 1? Investors should not just see pay as a matter of social justice, but also as a measure of long term value creation – ensuring that the company is investing properly in its workforce and retaining talent. One stand-out from our cohort is Buffett’s ratio of 6:1, which is x24 times better than the US Large Cap benchmark. The ratios for Gates, Arnault, and Musk are considerably higher though, with employees having to work 180, 228, and 283 years, respectively, to earn the same amount as their senior execs in a single year.
“Buffett’s executive:employee pay ratio of 6:1, is x24 times better than our US Large Cap benchmark.”
Another area where Buffett excels is tax gap. He boasts a tax gap of 0%, alongside Arnault. The others have not fared so well, with Musk estimated to have a tax gap of around 5.05%, and Gates at 0.96%. Buffett’s results align with his recent comments in Berkshire Hathaway’s annual report1, in which he discussed the company’s contribution of $32 billion to the US Treasury via corporate income tax payments over the past decade, which equates to nearly a tenth of a percent of all taxes collected during that time. Investors who prioritise long-term value creation should take note of the tax gap, as it can have a significant impact on the wider economy through government spending and improvements.
Climate
Figure 2: Scope 1 & 2 carbon emissions from The Gates Foundation’s portfolio vs the benchmark
“The Gates Foundation portfolio has higher carbon emissions than the market benchmark”
Upon analysing the climate impact of the Gates Foundation portfolio, it was found that it has higher scope 1 and 2 carbon emissions than the market benchmark, which is surprising given Gates’ personal commitment to reducing climate change2. However, the portfolio is also overweight in companies that provide climate positive solutions such as railroads, which are more carbon-efficient than shipping by trucks.
Figure 3 A products and services breakdown of one of The Gates Foundation holdings.
By looking at a companies products and services, its easier to identify value driving activities and optimise your portfolio accordingly, especially when you have the outcome-based, factual data needed.
Business Activities
Diving deeper into the products and services level of analysis, investors can see what a company makes, and if it creates long term value with a positive impact.
For example, we can see that 73% of Arnault’s LVMH revenues are from products that are environmentally or socially harmful as defined by the UN SDGs, such as alcohol, leather, and fur. However, Arnault’s LVMH makes those harmful products in a way that is more carbon, water, and waste-efficient than the companies in the market benchmark.
In contrast, Musk has a high percentage of revenue (64%) from environmentally or socially positive business activities. Additionally, the products are made in a way that is more carbon, water, and waste-efficient than companies in the benchmark holdings.
These findings highlight the importance of examining companies’ long-term value creation potential through ESG impact. Investors can choose to support companies that prioritise sustainable operations and products, like Musk, who could create more positive impacts for the wider economy and society over the long term.
“Diving into the products and services level of analysis, investors can see what a company makes, and if it creates long term value with a positive impact”
We’ve only just scratched the surface
The launch of our individual investor portfolio report marks just the beginning of the journey towards more informed wealth decision-making. To gain more in-depth insights, download the actual reports and delve deeper into our analysis. Additionally, take advantage of our online analytics platform and interrogate the data according to your own preferences and unlock hundreds of more metrics and insights.
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2 https://www.gatesfoundation.org/ideas/articles/rodger-voorhies-climate-adaptation
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