Appleseed: Our biggest concern right now is probably “information overload.” With the explosion of new products and strategies in the space, it can be nearly impossible for clients to digest it all and figure out which solution actually makes the most sense for them. In our experience, clients are looking to align their portfolios with their values, and this can be a real challenge with the huge number of different products that exist, as well as the varied messaging that is swirling around the space. This is an excellent opportunity for advisors to offer guidance and help connect client goals and passions.
Essex: Given the heightened interest in ESG investing, many asset managers are launching new ESG focused funds or re-positioning existing funds to have an ESG tilt. We are concerned that many of these funds are sub-optimal offerings that are trying to capitalize on the rising interest in social investing but are not truly committed to a genuine effort to bridge institutional quality portfolio management with social impact. Investors need to look beyond labeling to determine if a so-called ESG strategy is appropriately aligned with and capable of delivering on his or her social and financial goals.
Sage: There are a few concerns in the ESG space right now, first of which is the continued issue of Greenwashing (a form of marketing spin in which green values are deceptively used to persuade the public an organization's products, aims or policies are environmentally or socially friendly). Investors need to look beyond labels and understand the investing methodologies and impacts of the strategies in which they are invested. In addition, investors should evaluate the ESG reporting capacity of the managers that they are working with to determine if there is third party verification and auditing of their ESG strategies. This transparency is key in order to fully understand how assets are invested and whether the strategy is in fact investing in an ESG manner and creating impacts as expected by the investor.
Cornerstone: I do see a critical gap in the set of tools being used—in the ability to systematically measure impact. The lack of consistent, broadly applicable measurement standards makes it extremely challenging to understand how investment dollars benefit, or harm, our world. Organizations such as the Sustainability Accounting Standards Board (SASB), of which I am a founding Board member, the Global Reporting Initiative (GRI) and others are working diligently to progress the adoption of consistent data reporting standards and meaningful metrics.
Karner Blue: The impetus of socially responsible investing, in theory, was to generate change by lowering cost of capital through investment in “good” companies and engaging with those that lag behind in material social and environmental policies, thereby creating impact. The confusion, however, now exists for investors, for as without scale or corporate advocacy strategies, it would be difficult for a single manager to affect change, and thereby be a “socially responsible investor.” The integration of ESG or sustainability data into investment decision making does not in itself render a strategy as “socially responsible.”
Hortz: When you look at the flood of articles now being published, are you happy with the tone and substance of the coverage? Are there important issues or topics missing or we are not talking enough about?
Cornerstone: On the whole, the increased media focus on this space is a positive. The one thing that really bothers me, though, is the persistence of the myth that impact investing implies concessionary returns. While it’s true that some impact investments are designed to achieve modest financial returns, it’s entirely possible to invest with the same expectation for market rate returns or better.
To your second question, I think more can be done to emphasize sustainable and impact investing as a fiduciary responsibility. The SEC has muddied the waters with conflicting statements about whether the consideration of material ESG factors should be a fiduciary duty or not. I would also like to see more work in the mainstream press on the circular economy—the concept of intentionally designing waste out of the global supply chain across sectors. I think adopting circular economy principles is perhaps the single most meaningful systemic change we need if we have any hopes of averting climate catastrophe.
Appleseed: I think the media can do more to show how well sustainable investing can compete with more traditional strategies on a performance basis, as that would generate even more interest from investors, but overall, I think coverage has been really helpful. More and more clients and advisors are having the conversation about aligning investments with values, and the stigma that used to exist around sustainable investing is gone. Media coverage has played a big role here.
Essex: One of our frustrations is the re-hashing of articles discussing SRI approaches of yesteryear; today’s generation of true social impact strategies is much different from the negative screening approach of SRI 1.0. For example, we are focused on investing to environmental themes, in the stocks of companies we believe have differentiated environmental solutions. We believe climate change and other environmental challenges create long-term investment opportunities yet the SRI market seldom discusses thematic or solutions-oriented approaches.