Instead of worrying about what a Trump presidency will do to this country or what it says about America, let’s consider appropriate ways to respond through capital markets intervention. The wave of investor capital flowing into portfolios that incorporate environmental, social and governance (ESG) metrics continues to grow at an unprecedented rate.
ESG Investing Grows 33%
The just released 2016 US SIF report on US Sustainable, Responsible and Impact Investing Trends highlighted the growing demand for ESG investing. Investors now consider ESG factors in the allocation of $8.72 trillion, or one-fifth of all investment under professional management. This represents a 33% increase since 2014. (1)
In the past decade the Sustainable and Responsible Investment (SRI) industry, in collaboration with NGO, scientific and academic partners has raised global awareness related to Climate Change and numerous related (ESG) issues. However they choose to work with this knowledge and science, investors can no longer ignore the material nature of these issues for valuing companies, whether in the public or private marketplace. ESG considerations are part of the landscape investors and their advisors must navigate going forward.
While continuing to build on this success as we transition into the next generation economy, the financial advisor community must develop additional tools and collaborative initiatives that focus on the social, as well as economic impacts of this transition. Human migration, instability of place and diverse urban populations are the leading edge, already followed by political and economic flux around the world.
Robert Eccles, Professor of Management Practice at Harvard and Chairman of Arabesque Partners, a global wealth management firm headquartered in London, had this to say about last week’s presidential election results in the U.S.:
“Mr. Trump’s election as President just confirms for me the importance of the private sector in contributing to the environmental, social, and governance (ESG) objectives needed to preserve the integrity of our capital markets and to achieve a sustainable society. Trump is a real threat to efforts to cope with climate change and to ensure social justice along many dimensions. Companies that take the long-term view and address the key environmental and social issues they must manage and don’t let themselves fall victim to this mindless populism will prosper over the long term. Evidence is mounting that investors will support them for doing so. “ESG integration” has become a rallying cry for some of the largest asset owners and asset managers in the world. This gives me hope.”
Both environmental and social issues must now be addressed with a strong sense of urgency. Ultimately, they are related to each other. Yes, fossil fuel based jobs increase climate risk but it’s hard for people to be overly concerned when they’re struggling with the monthly bills. Companies and investors must also confront the broader set of genuine concerns that President-elect Trump successfully tapped into, such as jobs and income inequality.
While we direct investment capital to new opportunities for clients, advisors must remain focused on meeting the social impact challenges that go hand-in-hand with investment allocation for the future. More than ever, it’s important to discuss these challenges and related opportunities with clients.
SMART Investing is a program developed to help financial advisors do that and more. Gitterman Wealth Management and Paul Ellis Consulting bring over 20 years of combined experience to bear on portfolio strategies, marketing and continuing education for RIAs and financial advisors that want to integrate ESG issues into their investment selection process.
(1) 2016 US SIF Report on US Sustainable, Responsible and Impact Investing Trends