Well, according to an article in the most recent issue of Financial Advisor Magazine, it isn’t. The article indicates that sustainable investing (when one considers environmental, social and corporate governance criteria to generate long-term financial returns and positive societal impact) isn’t something which clients prioritize. It’s more something the advisor will ask about and sometimes learn that it’s on a client’s spectrum of importance but not a front burner issue. I’ve got to say, in my office we have many clients who have indicated at the very first meeting how important sustainable and socially responsible investing issues are to them. More below:
Perhaps one reason why many advisors don’t have clients giving high priority to this issue is that sustainable investing is a louder theme with younger generations. As an advisor with many clients under 40, I can attest to the fact that the younger demographic cares more about these issues than people ages 60+. Because much of the wealth in our country is held by people in that older demographic, we don’t see just how many people truly care about the culture of the companies they are investing in. I would think over the next 20 years that focus will continue to shift towards sustainable investing.
In the 90’s, there was this prevalent attitude that avoiding tobacco, oil, casino stocks meant accepting a lower total return on your portfolio as those were some of the most profitable industries in America. The exact opposite may be true today. Many people believe sustainable investing is not just a feel-good notion, but that it leads directly to good financial management since companies that practice these strategies may be better run. According to Lynne Ford of Calvert Investment Distributors: “If management teams are controlling their usage of resources and demonstrating efficiency over time, then it’s an indicator of a well-run global company, outperformance and uncorrelated alpha due to these factors.” I think the correlation makes sense and have met with executives at many young tech companies that are incredibly efficient at allocating technology and resources.
Beyond the environmental and social side of investing, the corporate governance aspect is crucial as well. Investors have been burned many times over the past decade by firms flooded with self-interest and greed, often trying to represent the exact opposite to shareholders. Nowadays there are an increasing number of firms helping retail investors evaluate how to assess a corporation’s ethics in the areas of accounting, investor relations, executive compensation, conflicts of interest, regulatory compliance, etc. As a result of this increased focus, more boards are being proactive about corporate governance issues to prevent these problems from rearing their ugly heads.
Investors should speak with their advisors about what they own within their portfolios to make sure it fits not just within their time frame and risk tolerance, but also within their moral and ethical beliefs. As distant as you may feel from your investments, a share of stock is truly a unit of ownership which ties you not only to that companies profits and losses but also to their internal attitudes and beliefs. Wouldn’t it be nice to know that the companies you own not only offer you the potential for profit but also take active steps towards environmental, social, and corporate well-being?
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