ESG clearly has an impact on what MASCO acquires, says company CFO John Sznewajs.
"ESG is a big movement here in corporate America today, probably one of the fastest-moving initiatives I've seen in my career," he says.
The company wants to avoid buying something that may negatively impact its ESG ratings because shareholders are interested in that and they're voting on it. That means buying companies that compliment or extend MASCO's ESG scores in the right direction.
Sznewajs says MASCO, however, is still prioritizing strategic fit when sourcing deals. In a deal where the ESG profile of the target might not be where the company wants it, MASCO would, through diligence, identify the ESG shortcomings and develop countermeasures to put a plan in place to improve those scores over time.
"Unless something was so catastrophically wrong with the company that it was prohibitive to do it," he says. "But absent something on that end of the spectrum, we would look at it and then use our own internal processes to make a company better."
Ancora Managing Director and Portfolio Manager David Sowerby, CFA, says ESG is a real consideration, not just talk, and companies in the U.S. are on a path to try to catch up to where Europe has been with ESG for the last several years.
"If I had a conversation in 2010 about portfolios and companies' commitment to ESG, it would be a much smaller line item. Today, it's much more significant," Sowerby says. "When I see companies present, whether it's their quarterly call or at a conference, there is more often than not a page to two pages on their ESG commitment, where it wasn't before."
Subsequently, as an investor, he says he wants companies that are moving in the right direction when it comes to the Environmental, Social and Governance.
One complicating issue, however, is that ESG accountability is often scored by outside third parties and the rating numbers vary significantly based on the agency that's doing the scoring.
"That's one of the key issues that need to be improved is how different companies are scored on their ESG companies based on who's doing the rating," Sowerby says. "There needs to be much more transparency, and some common ground."
Sznewajs and Sowerby, along with Cendrowski Corporate Advisors' Harry Cendrowski, spoke at last year's Detroit Smart Business Dealmakers Conference, about where corporations and private investors have made the biggest changes, and what to expect next. Hit play on the video above to catch the full panel discussion.