Three years ago, our firm recognized the SRI (Sustainable and Responsible Investment) trends were not a passing fad. We observed the geopolitical and regulatory shifts around ESG (Environmental, Social and Governance) issues. We saw an increased investment commitment to ESG screens by institutional and non-profit organizations. We saw that corporate branding, marketing and advertising was also focusing on sustainability.
Would our clients invest their own money in professionally managed, time-tested, risk-based, asset allocation models? We knew we would need to create a portfolio that stood up to traditional performance, risk and expense metrics. The portfolio must also overcome the antiquated perceptions around exclusionary screens.
We also believed there was a growing need for our clients to find ways to feel a sense of personal significance and hope. Global economic uncertainly, political impotence, and the growing wage gap for the middle class (especially for women) all create strong sense of cynicism and helplessness. Shareholder advocacy stories of change and impact, driven by many of our management teams, could deliver a much-needed positive message: “capitalism at its finest.”
Step 1: Research
The first step was to do our homework. We needed to get up to speed on industry trends, current research, language, various investment screens, performance and risk measures. We had to learn about product availability to create a complete, risk-based, asset allocation series of portfolios.
We attended ESG/SRI conferences, beginning with the U.S. Sustainable Investment Forum (USSIF). We earned certification in ESG investing. We read the most recent white papers and research reports by industry thought leaders and many of the major financial institutions beginning to get on board. (Other independent resources we drew upon were Morningstar, MSCI, F1360 and our broker dealer.)
Step 2: Collaborate With Strong Strategic Partners
In order to move quickly, we needed to fast-track our learning and portfolio development. We had to find good strategic partners we could leverage—not only in product design and knowledge, but also in branding and marketing strategies. We contacted a few of the oldest SRI management firms. They were extremely helpful and willing to support our efforts. Despite the growing consumer demand, financial advisors still lag this trend, and SRI firms are very willing to provide the much-needed training and support.
At this point, we needed to beta test our plan with our clients to be sure there was sufficient interest to commit to the project. We co-hosted a number of small and medium sized, informal focus group discussions and found that once clients actually knew that they could invest for both target performance and purpose, it made sense to them. Many of our key clients were not only open to our new portfolios but excited and appreciative of our investment approach.
Step 3: Portfolio Design And Management