Cornerstone: It’s already happening. The climate change crisis has raised awareness of the critical need to invest for the health of the planet; we’re also seeing a generational shift, with younger generations wanting to integrate their financial planning holistically into their lives. Just as younger people increasingly cite a company’s stance on social and environmental issues as a key factor in deciding to work for that company, they increasingly want their investments to reflect their values and concerns. I think that one day, sustainable and impact investing will simply be called “investing.”
Sage: ESG investing will at some point become the standard. Understanding these additional nontraditional quantitative and qualitative factors allows investors to dig deeper into the operations and impacts of investable issuers. It will widely be viewed as another layer of risk management and become an accepted and material part of financial analysis.
Karner Blue: Absolutely. The $68 trillion in wealth transfer to individuals that consider sustainability and social responsibility a way of life, versus just an investment strategy, will shape the investment market place and put greater accountability on investment managers to provide products that deliver market returns and improve social outcomes.
Hortz: What is your best advice to advisors and their investors to consider about social investing at this time?
Karner Blue: Investors should determine what is important to them and seek strategies that align to their values. Thorough due diligence efforts will be required to delineate green wash strategies from those that authentically deliver socially responsible investment opportunities. Knowledgeable professional advice can benefit this growing social investing client base.
Appleseed: Do your homework. Not all funds and firms are alike, and their approaches to sustainability could vary pretty dramatically. Don’t just rely on some third-party rating to tell you a product is “sustainable” or “green” or whatever. Become familiar with the resources out there, such as The Forum for Sustainable and Responsible Investment and As You Sow. Due diligence is important for any investment, and this is simply one more area where investors and advisors should be sure they understand what they’re getting.
Essex: As with any investment advice, the process needs to start with an understanding of an investor’s goals—including proactively learning about the client’s social goals—and construct a portfolio that can achieve these social goals while also meeting their financial goals. For example, does the investor care passionately about solving for climate change or improving world health or eradicating poverty? If so, then an advisor can incorporate these values by recommending specific strategies and social managers for their asset allocation strategy.
Sage: Advisors should be doing their research in terms of managers and their strategies in this space. As mentioned above, greenwashing continues to be a prominent issue and therefore advisors should be taking a deeper look to understand exact methodologies, manager firm wide commitment to ESG, thought leadership in the space, transparency in terms of process and ESG reporting.
Cornerstone: Manager selection is key to successful impact investing. Because of the volume and varying quality of product, it’s important to really understand what the investment strategy is aiming to achieve, and whether its investments are truly aligned with that objective. For advisors, this means one must be open to learning and adapting, and for clients, this means that selecting an advisor that really “gets it” and understands how to navigate this investment landscape.
Thank you all for your participation in contributing your thought leadership and perspectives and for the readers, who are welcome to comment below, in being part of this dialogue. —Bill Hortz, IID