Sustainable and responsible Investing has moved out of the shadows to become a core concern of young, wealthy investors, according to research by Calvert Investments.
Moreover, financial advisors who can help these investors address their environmental, social and governance concerns with their investment dollars stand a good chance of retaining them as clients, Lynne Ford, executive vice president at Calvert Investment Distributors, said during a recent press briefing in New York.
“SRI (socially responsible investing) is hardly a niche anymore,” Ford said. SRI resonates with investors of the Gen-X and Millennial generations in a way it did not with older ones, she said.
An internal study conducted by Calvert in the fourth quarter of 2013 found that 57 percent of investors 35 and younger were familiar with SRI, compared with 29 percent of older investors. These younger investors were also three times as likely to have discussed SRI investing with friends and family.
Younger investors were 60 percent more likely to have researched, inquired about or considered investing in SRI mutual funds, and were twice as likely as older investors to have actually made that type of an investment, according to Calvert’s research.
“Issues of sustainability offer advisors an opportunity to engage with their clients,” Ford said.
But the study found advisors and investors weren’t frequently connecting on the issue of sustainability. Eighty-two percent of advisors said they waited for clients to bring up the topic, while 72 percent of investors said they waited for advisors to initiate a conversation.
Investors and advisors were also at odds about the reasons for choosing SRI. Half of investors surveyed saidtheir two chief reasons for choosing SRI were “an opportunity for strong investment performance” and to “diversify the portfolio.”
For their part, 82 percent of advisors said their top reason for selecting SRI was to “invest in a way that is consistent with my clients’ values.”
Ford pointed out that the sustainability issue dovetails with another client segment advisors can cultivate to their advantage: women. “Women tend to be more amenable than men to issues of sustainability,” she said.
Women tend to outlive their spouses and leave advisors in droves when they become widows, she said. Advisors can counter that trend by engaging women on sustainability issues while their husbands are alive.
Trending Upward
The younger generation’s embrace of SRI comes at a time when that investment market has exploded, Ford said. In 1995, 55 SRI strategies had $12 billion under management. The next decade saw fourfold growth, with more than 200 strategies managing $180 billion. In 2012, the Forum for Sustainable and Responsible Investment reported that SRI accounted for 11.2 percent of all assets under professional management in the U.S. at the end of 2011 or $3.7 trillion out of $33.3 trillion.
Companies have changed as well. When Calvert hung out its shingle in 1976, few companies had sustainability goals or outright rejected them, Ford said. Eventually, companies began to create in-house SRI departments, but these tended to be isolated and not integrated into the overall business.
Today, companies are more likely to talk about the environment, governance and human rights, she said, and 95 percent of the 250 biggest companies in the world report to the Global Reporting Initiative about the economic, environmental and social impacts caused by their everyday activities.
The financial crisis has also had a profound effect on SRI investing. Ford noted that financial data have become commoditized to the point where money managers struggle to differentiate themselves. The past four years have placed a great emphasis on risk management and the use of non-financial metrics about sustainability can give managers an edge.
A manager may avoid investment in a company that has a negative environmental impact, or conversely buy a positive story. “This plays up and down,” Ford said.
