Are your clients interested in sustainable, responsible and impact investing strategies?
There is a good chance they are, or will be in the near future, based on recent survey results in the US SIF Foundation's Report on US Sustainable, Responsible and Impact Investing Trends 2014. The survey reveals that nearly 18% of professionally managed assets in the United States are held by individuals, institutions or money managers who consider environmental, social and governance issues in selecting their portfolios, or who file shareholder resolutions on these issues at publicly traded companies.
Through these practices, they seek to achieve long-term competitive financial returns and positive social impact. The assets engaged in these strategies have grown impressively in the past two years, increasing 76% to $6.57 trillion and comprising more than one out of every six dollars under professional management in the U.S.
(More: Impact investing a potential trap for the unwary)
This nearly $7 trillion market cuts across an array of asset classes, including public equities and fixed income as well as in community development finance and in alternative investments. For example, private equity and other alternative investments considering environmental, social and governance criteria have grown 70% to $224 billion in 2014 from $132 billion two years ago. Community banks, credit unions and loan funds serving low and moderate income communities are also key areas where responsible investors have placed assets.
CLIMATE CHANGE
Climate change is the most significant environmental factor that money managers consider — the assets assessed through a climate lens have doubled since 2012. Although the international and domestic policy environment for climate action has been uncertain, investors have used their financial power to allocate capital to clean energy producers and to businesses with low carbon strategies. “Green bonds” or “climate bonds” have also proliferated in recent years to meet the increasing demand for climate-friendly investment options. Additionally, some investors, including the Rockefeller Brothers Fund and Stanford University, announced plans in 2014 to divest from a fossil fuel or all fossil fuels.
Human rights issues, such as restrictions on investing in companies in Sudan, and a range of governance issues, such as executive pay, have been included in the decision making of sustainable investors. A relatively new focus are policies restricting investments in weapons manufacturers, following the school shooting in Newtown, Conn.
Gender-lens investment is emerging as firms create products that focus on companies that help women advance and on organizations that assist women and their families living in poverty or in under-served communities.
There is no sign that interest in sustainable investing strategies will subside. The leading reasons cited by money managers for why they offered SRI products was client demand. In fact, as millennials accumulate wealth through inheritances or career advancement, they are likely to seek financial advisers that are familiar with the sustainable investing space and investment options that match their values.
A survey of high net worth millennials by U.S. Trust: Bank of America Private Wealth Management, for example, found that 69% believe that the social, environmental and political impact of investing is somewhat or extremely important, and that 31% have reviewed their investment portfolio for such impacts.
ROBUST ECOSYSTEM
A robust ecosystem exists for investors committed to addressing serious issues, from the retail investor who contributes to a mutual fund that selects companies with strong environmental profiles to accredited investors aiming to assist low income communities through a range of investment strategies. In this environment, financial advisers gain when they can provide counsel and resources that address the environmental, social and governance concerns of current and potential clients.
Advisers can also use the year end charitable giving process to discuss sustainable and impact investing with their clients.
As 2014 draws to a close, many individuals and institutions such as foundations are in the process of allocating their charitable and philanthropic dollars to support issues like clean water, human rights and diversity. Yet most of them will leave their investment assets out of this “impact” equation, providing them with one less strategy through which to advance important issues.
By educating themselves and keeping abreast of these trends and areas of client concern, advisers engaged in responsible investment can both attract new clients and strengthen existing client relationships. If you have yet to explore this space, perhaps an additional new year's resolution is in order.
Lisa Woll is CEO of US SIF, the Forum for Sustainable and Responsible Investment.
