The power of “and.”
It’s pretty remarkable, especially when it strings together the positive. For example: when I jog to the store instead of driving, I can pick up what I need and exercise and save money on gas and save money on parking. When it comes to technology, we are obsessed with “and.” My phone allows me to take and make calls and email, and store and listen to music, and use the Internet, and it even has a camera…you understand where I’m going.
So, if we as a society are typically fond of “and,” why have financial institutions and advisors been so averse to it – specifically in the context of making a financial return and a positive impact? As recently as last month, the Wall Street Journal ran an article in the “Advisor Voices” section that focused on this notion. “Despite the emergence and growing adoption of impact-investing strategies over the past decade, there are still many advisers who aren’t sold on the idea of aligning values and financial returns. And given the success many have enjoyed, I can appreciate their reluctance to embrace or even acknowledge another approach to investing.”
A few thoughts on the misperceptions holding back this “and”:
Because it’s new? While socially responsible, sustainable, impact, (SRI) and environmental, social, and governance (ESG) investing have gone through several iterations, the concept of using investments to achieve more than one goal is nothing new.
There is no market? According to Morgan Stanley, 75% of the total population was interested in sustainable investing in 2017. And 86% of the millennial generation, which is due to inherit a $30 trillion wealth transfer, was also interested in sustainable investing.
Performance? This idea of underperformance has dogged sustainable investing for decades – and it’s not true. Sustainable investing is not about excluding specific companies or sectors and limiting the investment universe. Instead, it is about screening-in investments that consider intangible assets, including brand, reputation, R&D pipelines, human capital, environmental performance, and social license to operate, among others. The universe of companies that are sound investments is significant and continues to expand. The amount of evidence that shows sustainable investing does not negatively affect performance is convincing. Just look at this article from Morningstar or this paper from MSCI, “Foundations of ESG Investing; How ESG Affects Equity Valuation, Risk, and Performance.”
A lack of knowledge and understanding? Perhaps. Impact and finance are two vastly different disciplines, and demonstrating how an investment makes a tangible impact can be tricky. Fortunately, there are frameworks such as the Sustainable Development Goals that can serve as a guide and conversation-starter. On a more basic level, financial advisors can start by having a conversation with clients to understand the areas they are passionate about, performing some research, and pursuing alternative avenues such as private equity or community investments.
The old guard of traditional investors may not want to give sustainable investing the time of day, but it’s time to reconsider. The more traction the practice gains, the more “unsustainable” investments will be penalized by the Street.
Those in the financial industry who embrace investing “and” positive impact should be telling their stories before they get left behind. At Longview Strategies, we understand the current and burgeoning investor landscape. Let us help you expand on the key attributes that make your impact story unique, without losing the traditional values that have helped define your success.
