In the new investment mix, clients demand more
More investors expect nothing less than positive social impact with long-term growth.
The mainstream increasingly has welcomed environmental, social and governance investing as a smart financial decision. As such, responsible funds are expected to endure greater scrutiny over social factors and financial ones.
Investing with ESG values in mind has been shown to yield financial returns over the long term, as noted in IR Magazine. While more clients see the evidence of this, they're also expecting more from sustainable ventures on every level. Expect to see more of this increased scrutiny in 2016, as a younger generation of socially minded, digital native investors are overseeing more money.
Using their wallets to make a difference
Clients don't just want to make money — they want to see that they're investing in something that will make a positive impact to the public good. And they want to see measurable results.
The younger generation of investors is more tech-savvy than its predecessors, and more data is available to evaluate ESG funds for social impact and financial returns. New tools are available to help clients investigate, compare and choose responsible funds.
Shifting retirement funds
As an example, 401k funds can include sustainable investments, which will change client expectations of retirement plans. Previously, the Department of Labor had discouraged fiduciaries from including ESG funds as part of a retirement plan, but recently changed its view. Fiduciaries can't accept lower financial returns or an increased risk, but the presence of ESG values in a fund can be a deciding factor for the younger workforce. Many clients will be expecting nothing less than a 401k that makes a social impact while providing long-term growth.
Looking past traditional descriptors
Wealth managers will be taking more into consideration than traditional factors such as cap size and historical returns. Some will avoid funds that deal with firearms, tobacco, fossil fuels and similar industries with a bad social rap. Many will go further by seeking out funds that make a measurable difference in important sustainable issues. These investors also will take action as shareholders, working to improve sustainability across various institutions.
Despite these new ESG value requirements, clients still will expect returns. As Audrey Choi pointed out in Green Money Journal, "Research has continued to proliferate, demonstrating more and more proof points that integrating ESG factors into investment decisions does not mean a sacrifice in financial returns."
This increased scrutiny for sustainable funds shows that more investors are taking a serious look at making the pivot to long-term, responsible ventures. Look for more progress in 2016 as social issues such as climate change, corporate transparency and payment equality make headlines.
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