Approximately 60% of advisors have expressed little or no interest in SRI investing, according to Morgan Stanley. Hendrik Bartel, CEO of TruValue Labs, a technology firm that specializes in data for asset managers and institutional investors, agrees. “Only 22% of advisors have approached their clients about sustainable investing in the past 12 months,” he says.
Even though a lot of people have started investing sustainably, there are even more who are interested. Eighty-six percent of millennials, 84% of women and 90% of wealthy women are interested in sustainable investing, according to Morgan Stanley and the Center for Talent Innovation, a research and advocacy organization that promotes diversity, and the great wealth transfer will bring even more interest.
There are ways to close the gaps, Gusman says. “Transparency needs to be increased,” she says. “Investors need to know the strategy they invested in is actually having an impact or that it does not contain any fossil fuels. Also, advisors and investors need to be better educated about sustainable investing.
“This is a fragmented space,” she says. “Just look at the number of different types of sustainable investing possibilities that are out there. For instance, an investor may want to promote women’s empowerment in a community in India. They can do that, but the opportunities need to be more accessible.”
Gusman feels 2018 is a watershed year for transparency and cooperation in sustainable investing. The Principles for Responsible Investment, a United Nations-sponsored network of investors who put impact investing into practice, has added a requirement this year for signatories to report on their sustainable investment activities and show what progress they have made in implementing them. The signatories will be ranked based on the degree of success in meeting the principles.
The principles have been in existence since 2005 and now have as signers about 2,000 institutional investors from 50 countries representing $70 trillion in investment assets. “Asset managers are beginning to demand more information from companies about their sustainable business practices,” Gusman says. It is important to know how investment companies are meeting the standards, “because what gets measured gets managed” and the more transparency that exists, the more investors will feel comfortable putting money into sustainable investments.
“It is becoming unacceptable to invest without considering ESG issues,” says Sapna Shah, director of strategy for the Global Impact Investing Network (GIIN). In the last 10 years, she says, there’s been a shift. Whereas investors used to simply avoid investing in companies pursuing questionable practices, now they seek investments that have positive impacts. “It is a paradigm shift.”
There will be another shift as younger advisors begin to take over for the older generation, says Derek Tharp, a financial planner with Conscious Capital in Cedar Rapids, Iowa. “The next generation of advisors will understand more about sustainable investing and there will be a shift in attitudes,” Tharp says. “Products also will evolve to make the investing easier.”
Investors are starting to look closer at some of the new products available and changes that existing companies are making, says Alanna Fishman, head of ESG for consulting firm HBW Resources.
For instance, “water is one of the biggest issues for energy companies,” Fishman says. “If you have two companies operating in the same space and one has a water management plan in place and one does not, the one without a plan will have less water available for production or will have to pay more for water. You invest in the one with the water management plan.”