At first glance, a money manager might look at the budget-slashing, executive order-heavy environmental policies from the Trump administration, and think “stay away.”
But new evidence (especially larger fund inflows) into sustainable investment reveals an opportunity for advisors to spin some gold out of political flax.
According to the U.S. Forum for Sustainable and Responsible Investment, so-called “impact investing” (also known as environmental, social and governance, or “ESG” funds) attract 20 percent of proceeds invested by U.S. asset managers.
That percentage translates into $8.7 trillion in cash – up 33 percent from 2014, the Forum found.
“U.S. sustainable, responsible and impact (SRI) investing continues to expand. The total U.S.-domiciled assets under management using SRI strategies grew from $6.57 trillion at the start of 2014 to $8.72 trillion at the start of 2016, an increase of 33 percent,” the Forum noted in its report.
These assets now account for more than $1 of every $5 under professional management in the U.S.
On The Rise
Investment management professionals say those figures will continue to rise, even as the Trump administration moves to rescind Obama-era executive orders boosting many sustainable funds, and takes a sledgehammer to the Environmental Protection Agency.
“Institutions across the globe are shifting investments to include more socially responsibly and environmentally focused funds,” said Krystal Rogers-Nelson, a safety and sustainability expert at A Secure Life. “The socially responsible trend is expected to continue to grow, especially in light of deregulation policies.”
Public-and-private sustainability programs like the Oberlin Project are “a shining example of implementing socially responsible practices across industries,” she said.
The project brought the City of Oberlin, Ohio, Oberlin College, and private and institutional partners together to eliminate carbon emissions, restore local agriculture, food supply and forestry, and create a new, sustainable base
for economic and community development.
There is no shortage of good reasons why impact investing is still a major draw for investors, even with a new president widely-viewed as ambivalent, if not disdainful, of some sustainable investment vehicles (especially those linked to global warming.)
“First, you’ve got easy access to information,” said Rogers-Nelson. “Technologies such as smart phone apps allow investors to get real-time data on the latest movements in financial markets and SRI contractors are providing higher quality data.
“This means that investors can make more informed decisions on sustainables based on evidence, research and extra-financial information included in company disclosures in areas such as governance, natural resources, social and community.”
'More Women Are Involved'
Gender trends play a major role in more cash flowing into EMG funds.
“More women are involved in the industry than ever before. Where women used to be seen as more of program beneficiaries rather than financial decision makers, the landscape has changed,” Rogers-Nelson added.
In the U.S., women are expected to receive 70 percent of inherited wealth by 2030, and female investors have shown more positive attitudes toward social investing compared to their male counterparts, she noted.
In a 2015 survey, 50 percent of the wealthiest women expressed an interest in social and environmental investing, while only 33 percent of wealthy men did, she said. Also, 65 percent of women thought that ESG impacts were important, as compared to just 52 percent of men.
In order to have a profitable portfolio, diversification is key, Rogers-Nelson said.
“While the market portfolio is the standard, more and more investors are realizing that by focusing on responsible mutual funds they can add value to their portfolios while supporting social and environmental causes,” she explained.
The popularity of ESG funds and stocks is not exactly a new phenomenon, other analysts say.
“Sustainable investment strategies have been gaining popularity for years,” said Pedro Silva, a financial advisor with LPL Financial in Shrewsbury, Mass.
While it was once thought that sustainable investing sacrificed return in favor of ethical practices, that is not necessarily the case, Silva noted.
“Companies that aren't focused on sustainability are not looking far enough into the future,” he said. “While the Trump presidency might create some pockets of opportunity or danger in certain sectors, sustainable environmental practices are sustainable business practices and will continue to be a theme for the foreseeable future.”
Of course, the No. 1 reason anyone invests in any asset is cash – and the higher return the better.
“Yes, the current administration is looking to dismantle environmental policy - while our planet is heating at a rate that is internationally recognized,” said Kristin Hull, founder of Nia Global Solutions, a sustainable public equities portfolio based in Oakland, Calif. “Yet where there are big problems, there are large market opportunities - which we are seeing now with the need to transition to clean and renewable energy sources.”
When those opportunities turn to profits, all the better, no matter who’s living in 1600 Pennsylvania Ave.
Brian O'Connell is a former Wall Street bond trader, and author of the best-selling books, The 401k Millionaire and CNBC's Guide to Creating Wealth. He's a regular contributor to major media business platforms, including CBS News, The Street.com, and Bloomberg. Brian may be contacted at [email protected]
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