Sustainable investment products, aim to both deliver robust returns and remedy social and environmental ills. Sustainable investing is one of the fastest-growing segments in finance with the sector almost doubling in size from $14 trillion in 2012 to $22 trillion in 2016.
What has caused the spike in interest of impact investing? With Millennials set to benefit from the largest intergenerational wealth shift in history in the coming years, investments are being tailored to their preferences. Children with a conscience are driving a shift in how their wealthy parents manage their money and are demanding more of a say in investment decisions. They want to exclude investing in certain types of companies from the family portfolio such as those that don’t pay a living wage, pollute the environment, or manufacture harmful or dangerous products.
No longer a niche market, there are many socially responsible funds that can make money for their clients and still tackle issues such as poverty and global warming. Socially responsible portfolios can contain equity funds, fixed income funds, and bonds. Green bonds are popular debt securities that raise capital to support climate related or environmental projects. The market is no longer immature and investors no longer have to sacrifice financial gains when embarking on an ethical approach.
What are the benefits to the portfolio of investing responsibly? Some are financial like lower volatility, lower price declines, and lower bankruptcies. Some are personal such the ability to make a difference shaping corporate behavior or supporting companies that positively impact society or the environment.
Financial performance need not suffer, but a long term view of returns is needed. Environmentally conscious, forward-thinking companies have energy efficient processes and have a low risk of fines or liabilities, both of which have a positive effect on the bottom line. Companies with safe, well-managed and diverse workplaces usually have low employee turnover which can mean higher profits. A cooperative, well-run board indicates stability and transparency which then reduces the risk of financial surprises.
As with any investment plan a socially responsible portfolio can be customized to fit your risk tolerance and expectations. Challenges include lower liquidity and the fact that investment in some companies may be restricted. Although mutual fund fees have fallen in recent years, the fees for socially-conscious investment strategies are generally higher than standard investment strategies. Fund managers tend to charge higher fees to compensate for the need to constantly monitor companies’ activities to ensure the standards of the fund are being upheld.
Socially responsible investing is a growing movement that may have been started by Millennials, but now investors of many generations have embraced it in order to enact change. The goals may differ from traditional investing, and be a bit more long term, but it represents the wave of the future!
Feel free to contact me, Cory Lyon, directly at 561-209-1120, with any questions regarding financial investment strategies. If you would like to reexamine your investments and realign your financial goals with your personal values, we can assist you in making an informed decision. At TFG Financial, we believe in customized investment portfolio design and personalized asset management. I act as a fiduciary for all my clients.
TFG Financial Advisors, LLC is a registered investment advisor. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities, and past performance is not indicative of future results. Investments involve risk and are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed here.
