ESG 2.0: Additional Screens to Build Your Stock Portfolio

As investors, it is important to know as much as possible about the companies in which we invest.  The required bottom line quarterly earnings reports offer just a glimpse of what is available, if you care to look, and the sad fact is that corporate earnings reports are often engineered, as disappointing as that sounds.

I wanted to see past the fog, and so back in the 1990’s, as poor corporate corruption began to dominate the news, I headed a team that created a multi-factor model that measured corporate behavior, specifically the integrity and trustworthiness of the company. This exercise in measuring the quality of company earnings lead to the development of an investment strategy that I call FACTS®

FACTS® identifies organizations with:

Financial Strength
Accounting Conservativeness
Corporate Integrity
Transparency
Sustainability / ESG (Environmental, Social, and Governance) Metrics

Over the last few years, there has been an increased interest within the investment community in ESG investing, which looks at environmental, social, and corporate governance issues relating to companies and their management.  Most ESG investors take a very personal approach. They may be interested in global sustainability issues, while others may focused on corporate governance.

But do to the wide discrepancy in approach and ESG data available, questions arise such as, “What is ESG,” and “does it really work?”

I think of ESG as an approach to better understand the quality of a company. Even if you did not use the term ESG, I think it is safe to say that most investors want access to the most relevant information about the companies we invest in. That sounds almost too simple to dispute.

I think of FACTS® as a method to assess the quality of companies based on the integrity and trustworthiness of their operations. The underlying concept behind FACTS® is if that management has high integrity, a company will likely rank highly and become a portfolio candidate.

To create our portfolio, I use a variety of screens that weed out most public companies, such as:

The quality of the Board of Directors.

The conservativeness of the company’s accounting practices.

The relationship of the company to its community.

The relationship of the company to its employees.

The relationship of the company to its suppliers.

The sustainability of the company’s business practices.

Others will use their own screens and methodologies to find companies that meet their own ESG standards, but the bottom line is this:

The more angles we look at, and the more information we have about the companies we invest in, the better our chances are for greater success!

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Author Jordan Kimmel

With over 30 years of experience in the financial services industry, both as a retail broker and fund / portfolio manager, Jordan is the creator of the FACTS® Stock Selection Process, which employs a unique holistic and quantitative analysis on the integrity and sustainability of over 2,000 US companies. Jordan’s FACTS® method identifies organizations with Financial Strength, Accounting Conservativeness, Corporate Integrity, Transparency, and Sustainability / ESG (Environmental, Social, and Governance) Metrics. FACTS® analyzes the largest and most liquid companies, and also incorporates Jordan’s Magnet® Investment Strategy, one of the first strategies of its kind to combine the best tenets of value, growth, and momentum of company fundamentals. Magnet® has been licensed to several leading institutions around the country, and Jordan appears frequently on several major financial TV networks, including CNBC, Fox Business, Bloomberg, and ABC News, among others. He has also been quoted extensively in several publications, including Forbes, The Wall Street Journal, and U.S. News & World Report. He is the author of two books, the most recent being “The Magnet Method of Investing.” (Wiley, 2009).

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