Mission-oriented investors are no longer required to sacrifice returns in order to take a stand. The world of ethical and responsible investing has grown up, and investors are impacting global industry.
SRI, or Socially Responsible Investing, used to be the playground for the elite; a strategy with the taint of righteous indignation, dragging along a cross of skimpy returns. The focus then was in building portfolios that avoided the companies that were doing bad business, and in doing so, having to choose second-rate cousins.
But over the last fifteen years, so much has changed. Environmental, Social and Corporate Governance investment strategies, ESG for short, have grown from $1.4 Trillion to $8.1 Trillion in assets and about 20% of all assets under management in the US have some ESG component. Investors didn’t create this groundswell by demanding that issuers become do-gooders. As it turns out, consumers are compelled by environmental, social and sustainable products and services and have been the true force behind the successes of companies that mindfully manage their environmental impact, employee focus, governance and diversity. At the same time, activist investors have proven that they can force change from within, and armies of impact-hungry investors have enacted powerful transformations within global companies.
And it just feels good purchasing a product that has recyclable packaging, a diverse board of directors or a service that donates a portion of profits to a just cause. It’s satisfying to invest in companies that meet those standards as well. But how do we actually measure all of this Do Goodingness?
It’s simple to measure the economic impact of an investment on my portfolio (am I being paid a dividend? Has my investment in the company grown over time?) but it’s quite another to measure environmental and social targets.
Reams of recent studies have shown that diversity and proper corporate governance leads to meaningful stock outperformance and happy, smiling investors. Every major global asset manager from AXA to Vanguard offers at least one ESG fund, and often many encompassing themes such as workplace equality to water scarcity to clean energy. Just as the tidal wave of Exchange Traded Funds fueled asset management profits, ESG investment initiatives are not far behind. On my screener, I show 1,063 Socially Responsible ETFs and Mutual Funds in the US compared to just 316 funds focused on healthcare.
Investors do not need a special fund to align their money with their mission anymore. There are screening tools that enable investors and their advisors insight into governance practices, hiring, diversity, employment practices, and ranking systems for environmental impact. The transparency that has been initiated by regulatory agencies has been furthered by investor demand. Creating our own mission portfolio with values that matter to our lives and our legacies is critical to creating the future we desire.
About an eternity ago, (in 1970), the economist Milton Friedman wrote an article in the New York Times entitled “The Social Responsibility of Business Is to Increase Its Profits.” Most investors will screen for profits first and invest with management, then seek social or environmental impact second. We believe the tide has turned. Yes, profits are the first screen, but if impact is negative, there are a lot of other fish in the sea.
Next month, I’ll write about some of the companies in our mission portfolio and on our watch list here at Divine Asset that we consider mission or impact worthy investments. Have a wonderful September!!
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