Clients want it. So how can advisors meet accelerating demand for sustainable and impact investing—and prepare for the next wave of system-level investing?
In our book, 21st Century Investing: Redirecting Financial Strategies to Drive Systems Change, we provide a roadmap to help advisors serve that demand by integrating system-level risk and reward management into investment decision making. Investment today has evolved from modern portfolio theory’s conventional approach starting in the 1950s. Investors have since recognized the importance of sustainable investment and have begun considering environmental, social and governance (ESG) factors. Yet the complexity of the times forces us to recognize and transition to a third stage of investment practice: system-level investing.
This next wave will be powered by millennials, who are in line to inherit more than $68 trillion in wealth from boomer parents during the coming decade. In its U.S. Full-Service Investor Satisfaction Study, JD Power found that “among investors under age 40 who strongly agree that their advisory firm is committed to ESG efforts, 52% say they plan to increase their investment with that firm. (The number falls to just 24% among investors over age 40.)
While client demand for sustainable and impact investing is growing, many advisors seem to be missing the boat. Despite the positive appeal ESG has among younger investors, 68% say they either have doubts about their firm’s commitment to it or don’t know about it. A recent Cerulli report found 58% of financial advisors indicated, surprisingly, a lack of investor demand was a significant factor preventing their adoption of ESG strategies. A lack of familiarity with ESG trends on the part of advisors may well be the source of this apparent disconnect.
This new book will help advisors catch up with this new trend. The following excerpt is an introduction to system-level investing, providing advisors with insights into how they can integrate this new way of thinking into their current practice and support clients who are looking for smart ways to invest in an increasingly populated, complex and interconnected world. By doing so, we believe advisors will leapfrog the competition and position themselves effectively for the transition to system-level investing.
21st Century Investing: Redirecting Financial Strategies to Drive Systems Change
It’s time for a new way to think about investing, one that can contend with the complex challenges we face in the 21st century.
Investment today has evolved historically from a basic, conventional approach (concern about the risks of security selection and portfolio risk management) to embrace as well sustainable investment (intentionally achieving social and environmental benefits along with financial returns). Building on this integration of sustainability factors, it can now transition to a third stage that recognizes both the power of investments to impact social, financial, and environmental systems and the complexity of the times we live in. We call this system-level investing.
System-level investors believe that it is time to support and enhance the health and stability of the social, financial, and environmental systems on which they depend for long-term returns. They preserve and strengthen these fundamental systems while still generating competitive or otherwise acceptable performance.
This book is for those investors who believe in that transition.
They may be institutions, large or small, concerned about the long-term stability of the environment and society. They may be individual investors who want their children and grandchildren to inherit a just and sustainable world. They may have already adopted sustainable investment strategies and be ready to transition to system-level investment. Or they may never have considered alternatives to a conventional approach.
Whoever they may be, they will find the what, why, and how of this transition in these pages: what it means to manage system-level risks and rewards, why it is imperative to do so now, and how to integrate this new way of thinking into their current practice. In particular, the book provides investors with a process for setting goals, deciding where to focus, allocating assets, applying investment tools, leveraging advanced techniques, and evaluating results. It helps investors build on their current practice and, by incorporating system-level perspectives, better align the investments of today with society’s long-term goals.