Jane King’s personal interest in responsible investment began a couple of decades ago, but when she explored the options back then she found a limited number of products with less-than-stellar returns. She didn’t feel comfortable bringing those underperforming funds to her clients.

What a difference a couple of decades make.

“The conversation has changed completely from 20 years ago, when there weren’t that many choices,” says King, the founder and president of Fairfield Financial Advisors, a Wellesley, Mass.-based firm with roughly $200 million in assets under management. “The words, ‘You’re going to give up returns,’ I could never say those words to clients. That’s not why they hired me.”

Over time, especially in recent years, the sustainable, responsible and impact (SRI) investment marketplace has expanded and improved, and King’s patience and dogged research have paid off. Today, she can begin the conversation by assuring folks they don’t have to make that sacrifice, and this starting point makes all the difference.

“When I bring it up with clients, they’re pretty much all in favor [if the returns are the same],” she says, adding that roughly 70% of her clients, who fall mostly in the range of $2 million to $5 million in investable assets, now have at least a small percentage of their money in SRI. “No one’s ever said, ‘No, I really prefer to invest in tobacco rather than clean energy.’”

As increasing numbers of investors express interest in SRI investment, financial advisors are finding it harder to ignore. And they shouldn’t. Because while investing responsibly takes work, advisors who make the effort say they experience high levels of client satisfaction and stronger advisor-client relationships.

A growing number of competitive green and socially responsible products make investing responsibly more attractive than it used to be, they report. Not only that, but funds analyzing companies through the environmental, social and governance (ESG) lens often outperform non-ESG counterparts. Moreover, there are now numerous resources to help advisors sort through the burgeoning SRI market. To name a few: US SIF (the Forum for Sustainable and Responsible Investment) offers a variety of educational tools and a popular annual conference; Morningstar’s sustainability ratings make for a good starting point for identifying mutual funds; the Global Impact Investing Network (GIIN) provides a database of impact deals, performance metrics for measuring impact and education and training; and the ImpactUs Marketplace gives investors access to a variety of impact products.

No matter your approach, there’s help out there.

King prefers mutual funds for clients who are just dipping their toe in the water, and she especially likes Parnassus Investments, a San Francisco-based firm that manages six funds using both financial and ESG criteria. Its Parnassus Endeavor Fund, a large-cap equity, fossil-fuel-divested offering, boasts a five-year performance record of 16.52%, beating out the S&P 500’s 13.28%.

And for clients who can stand the illiquidity, King has used Boston Community Capital’s loan fund as a bond alternative. For 30 years, the fund has made more than $500 million in loans to finance affordable housing, commercial real estate in vulnerable communities and child- and health-care facilities that serve low-income families. “For tying up your money for about five years, it’ll get you 4%,” King says, “which in this interest rate environment is pretty similar to a bond.”


A Midlife Crisis And Six Months Of Homework
A couple of years ago, Jeffrey Gitterman was headed toward 50 and feeling a little ambivalent about his role as a financial planner at the firm he co-founded, Gitterman Wealth Management. He’d written a book, Beyond Success: Redefining the Meaning of Prosperity, and served as associate producer on the environmental documentary Planetary, and these experiences and the messages within seemed to speak to him more than managing money.

Gitterman’s firm serves New Jersey’s college professors, advising on roughly $575 million of the state’s 401(a) and 403(b) defined contribution retirement plans; separately, it manages $450 million in retirement and other assets for high-net-worth individuals and retired professors. In 2015, Gitterman’s midlife crisis and the news that Morningstar had launched its sustainability ratings motivated him to make a commitment to offering an SRI strategy.

Along with a full-time analyst, he began by researching the Morningstar database, coming up with 138 funds to start with. Then they used the Fossil Free Funds database, from Oakland, Calif.-based nonprofit As You Sow, as a filter on top of that. In all, they spent six months meeting with the managers who had a sustainable investment track record and digging more deeply into the funds’ underlying holdings.

“I have to admit, I thought it would be easy,” Gitterman says. “But we really had to do our homework.”

The firm now offers what it dubs SMART (Sustainable Metrics Applied to Risk Tolerance) portfolios, both an ESG model and a fossil fuel free model, with five different versions ranging in approach from conservative to aggressive. The portfolios include fixed-income funds from TIAA and Calvert Investments and equity funds from Parnassus, Pax World and Domini Impact Investments, among other offerings. Since the SMART portfolios went live in March 2016, roughly 15% of the non-pension clients—or $62 million of $450 million—have shifted their investments to them, and Gitterman hopes to get to $100 million by the end of this year. It helps that these portfolios are outperforming the firm’s non-ESG offering: The ESG model returned 42 more basis points and the fossil-free model returned 154 more basis points.

“Some clients care a lot [about investing responsibly], and others are just surprised that we can get them better returns by doing this,” Gitterman says, adding that the ones who do care love the new portfolios. “And the advisors really love it because it changes the conversation. After 27 years of seeing the same client four times a year, you can run out of things to talk about” on the investment side.

A Famous Actor’s Worst Nightmare
By now it’s become cliché that millennials want to align their money with their values, and women care more about doing so than men, but surveys now show that interest is increasing across the board. Over the last two years, the number of wealthy Americans who would like to invest money for social or environmental impact, or who have already done so, has increased regardless of age, gender or amount of assets, according to a recent survey by U.S. Trust. Overall, 45% of the survey’s respondents said they’re either interested in or already allocating assets to impact investing, up from 32% in 2015. As Gitterman acknowledges, some clients don’t care and never will—15% of respondents said nothing would persuade them to jump on the SRI train.

It’s up to advisors to get a clear picture of who the clients in the “never” column are, which can be done with an in-house survey or simply through a process of elimination. For those clients with even a passing interest, introducing the idea will give an advisor a clear picture of what each person feels passionate about.

At EMM, a New York-based firm that manages a total of $2.3 billion for just over 120 high-net-worth families and individuals, a good portion of client assets are invested via separate accounts. So the firm’s advisors generally start by bringing a particular investment to the client, says David Aaron, the firm’s chief investment officer. One example is a recent solar energy deal that allowed investors to take advantage of renewable energy tax credits.

“Through our discussions with clients, we begin to see what resonates, and we’re getting feedback on the investments,” Aaron says. “We often hear, ‘It would be great if you could find me more of that.’”

The same holds true for investments people don’t want. Not long after he joined EMM 10 years ago, Aaron took over the account of a female client, a famous actor who’d been investing with another wealth manager. Her investments had done quite well, Aaron says, partly because of her holdings in a U.S. company that built and ran private prisons. When Aaron mentioned this, the client’s reaction, he says, was, “Oh my goodness, I can’t tolerate that. Get me out of that.”
That interaction also made him realize how important stories are.

“It was like a lightning bolt to me,” he says. “The stories we tell around the investments are very important to the clients and can really increase their engagement.”

Getting Window Shoppers To Buy
Boston-based TFC Financial Management—which manages $900 million for individuals and families that, on average, have an investable net worth of $4 million to $5 million—just launched its sustainable and responsible investment strategy in June, mainly because of client demand. The strategy starts with a core platform that features low carbon offerings, because “environmental considerations are close to the top of the issue list for most of the people that we talk to,” says Daniel Kern, TFC’s chief investment officer. The firm then builds from that core, adding other types of ESG funds for diversification and direct impact investments in areas of particular interest to the client.

Part of the goal of this effort is to help close the fairly wide gap between investor interest and action. Remember that U.S. Trust survey mentioned before? Of the 45% of respondents who’d either expressed interest in or invested for impact, only 13% had actually taken the leap, while 32% merely said they’d like to.

“There are a lot of window shoppers who haven’t quite committed to putting meaningful assets to work in sustainable and responsible strategies,” says Kern, adding that out of the firm’s 340 clients, less than 10% have impact investments in their portfolios. “So we’re initiating conversations with clients who we know have an interest or who have expressed an interest in the past. … I expect that we’ll do more and more initiation, that this will be a topic we frequently bring up in our standing client meetings. … Based on the feedback we’ve gotten, we’ve been able to strengthen relationships with clients who are curious about socially responsible investing.”