On December 6, 2016, the NYU Stern Center for Sustainable Business hosted the founder and president of Parnassus Investments, Jerome Dodson, to discuss the founding of his firm, the challenges it presents, and the firm’s approach to Environmental, Social, and Governance (ESG) investing.
Parnassus Investments was one of the first investment companies in the U.S. to use ESG factors as indicators for investment strategy. In 1984, when it was founded, ESG was a fringe movement in a business community that thought investing based on social factors was sure to tank the business. Forbes Magazine and Kissinger wrote critical articles about Dodson and his Fund, sure that he would go under quickly, but by 1988, the Parnassus Fund had gone up 42% and by 1989 their original $10,000 was up to $23 million. Today, Parnassus Investments are worth over $20 billion.
A true entrepreneur, Jerome started the Parnassus Endeavor Fund with his wife, Thao Dodson, with the goals of social responsibility and investment performance in mind. Over time, the Parnassus Endeavor Fund out-performed, in multiple ways, the other top funds at the time, and proved the strategies to be sound.
The most important indicator of a company’s ESG compliance, Dodson says, is how it treats its employees. “The better you treat your employees, the better the business – they work harder and smarter,” while mistreated employees are unproductive and dismissive of the company. Second, Dodson looked at environmental protection and preservation, because performing well in these indicators lowers fees charged against the business and improves their reputation. Overall, there are 9 characteristics of a good company that form what Dodson calls a “moat of protection”—if you can’t identify the moat, you don’t invest in the company.
One attendee asked Mr. Dodson, “How have your ESG indicators changed from when you started the fund to today?” Dodson says that now he looks for women and minorities included on the Board of CEOs, always looks at the environmental aspect of the company’s performance, includes things like paternity leave that were never considered before, and never invests in alcohol or tobacco companies. He says that the rise of the internet has changed many of his methods, for marketing as well as financial analysis, but the strategy remains the same: social responsibility in everything.
Event Recap: Discussion of Parnassus Investments with Founder Jerome Dodson
Wednesday, May 17, 2017