Whether it’s called “sustainable,” “responsible” or “impact,” investing to address social and environmental issues has attracted billions of dollars in recent years while presenting both opportunities and challenges for advisors and their clients, according to a panel of experts at the 24th annual SRI Conference. This year’s conference, held Oct. 28-30 at The Broadmoor, a historic hotel in Colorado Springs, Colo., drew more than 550 advisors, institutional investors and high-net-worth individuals.
Worldwide demand from investors, including some large family offices that are 100-percent invested, is partly responsible for the growth of the space. “What these families have in common is that they are committed to a process of mobilizing all of their net worth for impact and sustainability,” said panelist Jed Emerson, who advises families in Hong Kong, Australia and the U.S. and serves as senior advisor to The Piton Foundation and The Gary Community Investment Company. Emerson is also co-author of the book Impact Investing: Transforming How We Make Money While Making a Difference.
Emerson told the audience that more demand has led to the creation of additional options for investing. Whether clients seek growth, wealth preservation or inflation protection, advisors can now find impact-oriented funds that meet clients’ needs, he said.
These funds can generate competitive financial returns, which helps to combat the perception that their managers underperform and lack demonstrable track records. “These are folks who’ve been in the business for 3, 5, 10, 15 years. You can actually compare them to more traditional fund managers,” he said.
Panelist Ron Cordes, co-chairman of Genworth Wealth Management, told the audience about another potentially overlooked benefit to impact investments – lack of correlation with the global financial markets.
During the 2008 financial crisis, he saw impact investments outperform. “In a world where a bunch of other investments that we made in major financial institutions were going completely sideways, investments that we made in micro banks in countries whose names we could neither spell nor pronounce were doing just fine,” he joked.
Despite the upside, challenges for advisors abound, especially when it comes to clarifying the emerging terminology surrounding these investments, such as “socially responsible,” “green” and “sustainable.” Judging from the nomenclature used by conference speakers and attendees, “impact” seems to be the current favorite, as it conveys investing for environmental or social “good,” without sacrificing competitive returns.
Retaining clients’ children and grandchildren is another sticking point for advisors. Studies show that as a group, younger investors are significantly more interested in impact investing than older investors. According to a recent survey by Spectrem Group, youthful investors are actually more interested in this type of investing than they were five years ago. But speakers at the SRI Conference said many advisors are reluctant to offer impact-related investments.
Panelist Jennifer Pryce, president and chief executive officer of Calvert Foundation, told the audience that Calvert uses social media to engage young investors. Connecting on social media platforms allows Calvert to reach them early. “We’re getting them when they’re just walking into their investment horizon,” she said.
Emerson told the audience that people in their twenties think the idea of spending their lives doing something that isn’t “purpose oriented” makes no sense. “It just doesn’t ‘rock’ at all. They don’t ‘get it,’” he said.
When these young investors inherit money, Emerson said they often immediately fire their parents’ advisors if the advisors can’t or won’t satisfy their desire to invest impactfully. “They will get that hunger met somewhere,” he said.
According to a June 2012 report by US SIF, a group that promotes sustainable and responsible investing, more than $3.74 trillion is now “responsibly” managed in the U.S., up from $639 billion in 1995.
Cordes said his firm discovered through market research and focus groups that investors of all ages are yearning to have conversations about sustainable, responsible investing. “It’s the single greatest opportunity that I see ahead for the financial advisor community.”
Many advisors could miss this chance, said panel moderator Steve Schueth, cofounder of the SRI Conference and president of First Affirmative Financial Network, a Colorado Springs-based independent RIA for socially-conscious individual and mission-driven institutional investors.
To emphasize his point, Schueth asked the audience to visualize an hour glass. At one end were those individuals and organizations that want to invest in an impactful way. At the other end, were the tools and strategies that could help them. “In the middle, in the tight spot, is the investment professional community, most of whom don’t ‘get it,’ don’t care and don’t have access to these kinds of products and services.”
