Responsible investing is defined as “applying an investment strategy which seeks to generate both financial and sustainable value by integrating environmental, social and governance (ESG), along with ethical issues, into financial analysis and decision-making.”
Perhaps one could equate it with “putting your money where your mouth is,” as it pertains to investing in the causes you support that aim to do good in the world. With $8.5 trillion invested in ESGs in 2016 and a +33% growth since 2014, responsible Investing seems to finally be entering mainstream investment strategies. Two factors can explain this rapid growth – the growing challenges of maintaining our environment and social well-being and the improved performance of these investment options.
1. A Social Movement.
A March 2017 Pew Research center poll shows that the majority of Americans are sensitive to environmental issues: 74% of adults in the US responded that “the country should do whatever it takes to protect the environment.” We see examples every day in the news where protection of the environment is entrenched in corporate and social agendas as much or more than in political agendas.
The increased understanding and popularity of responsible investing over the past few years is making it easier than ever now to opt in. Just like sorting weekly trash for recycling, investing in funds that support the betterment of our environment may start to become ingrained in our everyday investing behavior.
2. Improved Performance.
Up to now, a difficult hurdle for responsible investors to overcome was the lack of performance in so-called “green funds.” Now that many of these funds have been around 20+ years, comparison between key indices is becoming more relevant. Calvert Investments, a recognized leader in responsible investing, recently published a benchmark study of the MSCI KLD 400 Social index versus the S&P 500 which showed that responsible investments outperformed the market. In many cases we see “green” investment options performing as well as or even better than the majority of funds in the USA.
While the depth of choice has a way to go (there are only 300 ESG investment options currently offered in the market,) the question of performance is not an issue anymore.
It is possible today to direct money in socially responsible investment accounts without the fear of sacrificing return for the greater good. Doing good while doing well is finally possible. If you’d like to learn more about investing in ESGs, call us to schedule an appointment.
Note: Investing in mutual funds involves risk, including possible loss of principal and the return may be lower than if the adviser made decisions based solely on investment considerations.