In all Good Conscience–Investors strive to make a difference
When Time magazine named 17-year-old environmental activist Greta Thunberg its 2019 Person of the Year, it validated young people across the world who demanded action on climate change. Last year’s massive global climate strike, inspired by the Thunberg-led “school strikes for the climate,” saw 4,500 protests in over 100 countries, including the United States. Two years earlier, the Women’s March became the single-largest protest in U.S. history, drawing millions of people to the streets to advocate for women’s rights.
As this decade takes shape, Americans continue to strive for impactful ways to move the needle on social and environmental issues.
“Economic decisions are one way to push leaders to react to public demands,” says Ben Downing, former state senator and current vice president of new market development at Nexamp, solar energy company in Boston.
Consumers are now more than ever leveraging buying power for good. According to a 2017 Cone Communications study of American consumers, 80 percent of respondents would support social or environmental issues by purchasing a product from a socially conscious online retailer, and 87 percent would buy a product with a social or environmental benefit if given the opportunity.
Personal ideologies are starting to influence corporate behavior. More benefit corporations, or corporations that generate profits as well as positive impacts on society, were certified in 2019 than any other year, and powerful national brands—Walmart, Starbucks, and Facebook, to name a few—are caving to consumer pressures.
“The stage we’re currently in is building the economy around progressive goals such as clean energy,” says Downing.
A record 700 megawatts of residential solar was installed in the U.S. this summer, and the market is predicted to grow 18 percent year-over-year. Another personal investment strategy that has been gaining acceptance and accessibility is environmental, social, and corporate governance (ESG) investing. Also known as socially responsible investing (SRI) or sustainable investing, ESG allows investors to consider ethical or cause-based issues when choosing company stocks. Labor practices, racial diversity, gender equality, environmental sustainability, and politics can all be evaluation criteria in this process.
“If you’ve got a chunk of money in a 401(k), an IRA, or a savings account, ask yourself, ‘What else can I do with it?’ ” says John DeSantis, an ESG investing expert in Boston. Methods of ESG investments include negative screening (eliminating certain stocks from a portfolio) to themed or sector investing, which focuses a portfolio on one industry such as green technology or women-owned companies.
Despite its reputation, ESG investing is growing in popularity. “Historically, ESG investments don’t perform well, and they create a reduction in the broad principle of diversification,” says Matthew Chester, a financial advisor with RBC Wealth Management in Great Barrington. “If oil has a great year and you don’t have oil stock in your portfolio, you miss out on doing well.”
Some large cap, sustainable growth mutual funds like Brown Advisory have strong track records. Separately managed accounts, or SMAs, are more controlled and better for ESG. “There are also exchange-traded ESG indexes, which are passive market investments that are cheaper but still do well,” he says.
These days, though, better performing ESG investments are easier to find. According to the Morgan Stanley Institute for Sustainable Investing, there is no difference in the performance of ESG funds as compared to traditional funds. In fact, sustainable funds analyzed between 2004 and 2018 proved to be more stable in periods of volatility.
Other forms of investing have a more direct and immediate public benefit but can be costly and riskier. Impact investing strategies, from loans to venture capital and private equity, give investors the opportunity to support people and private institutions in both developed and emerging markets. “Microfinance lending supports people at the bottom of the pyramid—a thousand dollars to a farmer in Africa so he can irrigate his fields,” says DeSantis. “Or, you could invest in a company bank in India, which will see the biggest swell of middle-class customers in the world.”
Willow, a Pittsfield-based investment advisory group, offers high-impact private equity opportunities to select clients but focuses on individual and corporate wealth management through ESG investments.
The 30 companies Willow invests in are determined by a special ESG/SRI screening process that reviews multiple data points. “We want to see companies that have track records and set policy, but we also like companies that are striving to become better,” says Alexandra Dest (photo above), Willow’s founder and CEO.
Dest rebranded her decade-old company in January 2019 from a traditional investment firm to one with a mission. “We are finding that our existing clients are embracing it. At the same time, we are seeing an uptick in new clients—those outside our circle. People are hungry for change.”
The Global Sustainable Investment Alliance finds that the leading motivation for money managers to pursue ESG incorporation is client demand, but Dest is driven to manifest the world she wants to see, and her messages of healthy capitalism and shareholder activism are resonating.
“I’ve always believed that your money can be massaged to create better good,” says Dest. “You have the power to change things, period. If we all realized that collectively, we can change things very quickly.”