Is Responsible Investing the Future of All Investing?
Part of the job description for any communications professional is watching for trends.
What are people demanding? How are companies changing? What’s new? What’s next? What disruptive forces do our clients need to be aware of?
For the investment management industry, it seems the answer to each of these questions is increasingly the same -- responsible investing.
Responsible investing, which encompasses impact investing, ESG investing and socially responsible investing (SRI), is part of a global movement to better align social goals (i.e., making the world a better place) with performance goals. Of course, everyone has different social values and different theories on how to go about pushing them forward, but for a basic framework, many industry insiders point to the UN’s Social Development Goals (SDGs), a series of 27 global initiatives spanning everything from increasing access to financial services in underserved markets to fighting the forces of climate change.
Estimates of the total amount of assets in responsible investing vary widely depending on who you ask, but here are a few numbers to give you a sense of how large this movement has grown.
- More than one out of every five dollars under professional management in the U.S., or about $8.72 trillion, was invested in SRI strategies by the end of 2015, according to the US SIF Foundation’s 2016 Report on US Sustainable, Responsible and Impact Investing Trends
- Nine out of 10 of the largest U.S. asset managers (and 14 of the top 20) have launched or are exploring impact investing strategies, according to an analysis by consulting firm Tideline
- 225 global investors controlling more than $26.3 trillion recently joined forces in the Climate Action 100+ initiative to pressure the world's largest polluters to do more on climate change
- 75% of individual investors, and 86% of Millennials, say they are interested in sustainable investing, according to a recent Morgan Stanley report
- Nearly 2,000 financial firms, including more than 1,250 investment managers, have signed the UN’s Principles for Responsible Investment (UN PRI), a public pledge to support responsible investing
And as for skeptics who think pursuing social returns necessarily means sacrificing financial returns, here are two additional studies to consider:
- Companies that scored highly on ESG factors tended to outperform other stocks, according to a 2016 Bank of America Merrill Lynch study
- A joint meta study between the University of Oxford and Arabesque Partners on ESG investing and its impact on performance found that 80% of the more than 200 academic studies published on the subject demonstrated a link between prudent sustainability practices and a positive influence on investment performance
In just the past two years, more than two dozen of our clients--including traditional asset managers, hedge funds, private equity firms, private foundations, and even some service providers--have come to us with an assignment to promote their responsible investment capabilities. Countless more clients are considering entering the responsible investing market for the first time.
Their motivations may differ, but they’ve likely all reached the same fundamental conclusion--we’re all in this together.
Anything that negatively impacts a large segment of the population is ultimately a drag on economic growth and a tailwind against future investment performance. Likewise, anything that positively impacts a large portion of the population could be a boon for performance.
Lifting people out of poverty and developing more sustainable forms of energy can have long-lasting economic benefits, from increasing the size and wealth of the global consumer market to reducing the costs of climate change.
The shared problems of the world aren’t going away, and it’s a fool's errand to believe that governments can solve these problems by themselves.
The only solution is the capital markets. With some $85 trillion in global assets under management (and growing), the investment management industry is in a position to make a real impact. It all starts with embracing responsible investing and forever changing everything about how, why and where we invest.