“When you think about ESG principles, you’re thinking about the long-term impact for the business, whether that’s related to the environment, related to equity and inclusion or all the other aspects of ESG,” McDonagh said. These objectives are increasingly significant for MassMutual’s institutional clients who want to learn more about the firm’s commitment to ESG both as a company and as a financial solutions provider, he said. Top themes include climate change and achieving net-zero carbon emissions as well as diversity, equity and inclusion.
Mutuality at the core
For MassMutual, a 171-year-old life insurance company that has customers, members and participating policyowners, mutuality is a core value, McDonagh said. “When you have relationships that can last decades into the future, you want to ensure that your company and the promises you provide last not only today and tomorrow but well into the future.”
“The other element of mutuality is collectively pooling together to help each other for long-term financial well-being,” he said. “There’s an inherent alignment between mutuality and sustainability because both are focused on excellence over the long-term.”
This mindset informs the firm’s approach to sustainability, McDonagh said, which includes goals related to environmental stewardship, social responsibility and good governance. MassMutual has embraced these tenets of ESG within its investment portfolio and throughout its operations.
Many institutional clients today are seeking an alignment of shared interests with their industry partners, he pointed out. “Are those alignments of interests on shared ESG principles? Are they on complementary ESG goals and objectives within the investment portfolio? And do they deliver long-term value creation?”
Taking a sustainable path
While MassMutual has long focused on ways to decrease its environmental impact, it recently accelerated its actions by committing to net zero greenhouse gas emissions in its operations by 2030. To that end, a new Boston office that opened last year is certified as LEED Platinum® under the U.S. Green Building Council’s Leadership in Energy and Environmental Design program. More than 90% of the company’s corporate facilities (by square footage) have LEED certification, including its 1927-built Springfield headquarters, which has had major retrofitting, McDonagh said.
In addition, MassMutual is a signatory of the United Nations-supported Principles of Responsible Investing, and 97% of the general investment account that it runs for clients is managed by PRI signatories[1]. In 2021, the firm made a commitment to achieve net zero greenhouse gas emissions in its portfolio by 2050, McDonagh noted. “Those are some of the ways that we have not only demonstrated our commitment, but have also made progress toward our goals,” he said.
“All of these steps align with our core intentions of how we think about having a positive impact on the environment,” McDonagh said.
For its overall investment portfolio, MassMutual follows a framework that its portfolio managers use to evaluate opportunities across the investment portfolio. The framework takes an engagement-centered approach in which MassMutual actively engages with companies and investment partners on their ESG-related activities and policies.
On the aspect of social responsibility, MassMutual committed $100 million of impact investment capital aimed at advancing racial equity and economic opportunity: $50 million of that commitment is allocated to the MM Catalyst Fund[2], which supports entrepreneurs in Massachusetts, including Black-owned, founded or managed businesses as well as technology and sustainability-focused companies.
Transparent goals and action
Institutional investors who prioritize a mutual commitment to ESG objectives with their industry partners need to do the necessary due diligence to evaluate their partners’ ESG processes and outcomes, McDonagh said. “That requires seeing whether a company’s actions are consistent with the goals that they’ve publicly shared.”
“By having that conversation and doing that research, you can understand whether there is an alignment of interests,” he said. “You want partners with whom you not only have alignment of interests on business and financial goals, but on sustainability and ESG principles as well.”
As institutional clients look more closely at how industry providers are meeting stated ESG objectives, transparency is key. “Companies need to be clear about what their intentions and goals are. But it’s not just about the statements that companies make. What are the actions they are taking?” he said.
MassMutual published its first sustainability report earlier this year. “We’ve continued to try to evolve how we provide the market and our customers with information on where we stand on ESG and the actions we’re taking,” McDonagh said. “Our evolution has been about continually looking at ways that we can have more positive impact and how to get that information into the hands of those who care about it in the most effective manner.”
It’s a journey
Increasingly, interests overlap. Thinking sustainably is an essential part of operating a successful business — or finding investment opportunities — in today’s market environment, McDonagh said. “ESG principles, to my mind, are not something distinct from how you operate a business. They are embedded in how you operate a business.”
“It’s a journey — it’s not a destination.” It’s matter of how companies move “toward those goals,” he said. “For a company to be really successful, it is about stewardship of its assets, its mission, its relationships with customers [and] its ESG principles.”
