Socially responsible investing, otherwise known as impact or Environmental, Social, Governance (ESG) investing, has been a hot topic in the news and a rapidly growing area of focus, especially among millennials who are about to receive the largest intergenerational transfer of wealth in history. Over the next few years approximately 30 trillion dollars in inheritance money will move from baby boomers to millennials and Gen X’ers. At a time when environmental sustainability, gender equity, racial justice, and many other issues are drivers for where younger generations choose to spend their money, it seems that what was once a fad, is now becoming as essential measurement of investors’ portfolios.
I asked one of my mentors, David Maurice Sharpe, financial educator and author of The Thriving Artist, what he thought about the ESG investing trend. He agreed, saying, “ESG awareness in investing is certainly in the headlines these days and is exploding in popularity. An interesting twist is that this is providing a pathway into saving and investing for people who otherwise might shun participating in the stock & bond markets. As you know, the primary audience for my financial literacy talks is artists and other freelancers, who are often environmentally and socially aware. Being able to direct their investments towards companies, mutual funds and ETFs that promote the values they themselves have enables them to feel good about investing. This, in turn, helps them to build a financial wellness plan that promotes rather than works against their core beliefs. It’s a way for them to make a difference while helping their own financial security.”
David reminds his students in his workshops that along with their shares of a company, comes the ability to cast a proxy vote. Anytime the shareholders are asked their opinion, their ownership allows them to vote in the direction that aligns with their values. If one is investing in a company where ESG related issues come up, a shareholder can cast a vote toward addressing those concerns, potentially improving the company’s impact on the world.
I think the answer is clear. Aligning with an investor’s values is becoming just as critical as aligning with their tolerance for risk. Measuring the impact of a portfolio will soon be an expected part of the conversation between clients and advisors, and its one that can’t be ignored.