This time of year, financial services companies love to talk about “doing well by doing good,” but the Millennial generation and the advent of big data are taking socially responsible investing to a whole new level.
Socially responsible investing – which sometimes also goes by ESG, for “environmental, social and governance” – is not an especially new idea. The concept originally dates to the mid-18th century when the Religious Society of Friends (also known as the Quakers) prohibited their members from participating in the slave trade. Socially responsible investing (SRI, for short) later gained traction in the 1980s and ’90s as investors began divesting from companies in South Africa as a means of fighting apartheid.
In recent years, SRI has taken on a much more inclusive flavor. While once religious investors might have sought to avoid investments in, say, tobacco products, now you might see Baby Boomers wanting to support clean energy or gender-diverse companies with their money.
Socially responsible investing also appeals to younger investors and to private foundations and endowments, said Carly Greenberg, an ESG research analyst at Walden Asset Management, an arm of Boston Trust & Investment Management that has around $2.6 billion in assets.
“We hear a broad array of reasons why investors get into this type of investment. Ultimately, a couple themes emerge, especially for the foundations and endowments,” she said. “A lot of endowments coming into this space don’t want to just do good with the portion of their money they write grants with; they also want to do good with the money they’re investing and put their money where their mouth is.”
And now the menu of choices under the SRI umbrella has expanded, said Lauren Compere, managing director at Boston Common Asset Management. Boston Common, which manages just over $2 billion in assets, specializes in asset management in the public equity space on a global basis.
“What has been interesting in the evolution of SRI and ESG is the fact that it has broadened the players and the actors, who each bring a different aptitude to the table. Ours is active management, so we do both negative and positive screening, as well as ESG,” she said.
There’s evidence, in the form of academic studies, to suggest that selecting companies for various ESG factors can be a smart investment choice, too, Compere said.
“We integrate ESG into our investment decision making,” Greenberg said. “Whenever we’re adding a company to our portfolios, we evaluate not just their financials, but [also] do they treat their workers well, do they have any egregious environmental concerns?”
Recognizing that there’s no such thing as a perfect company, Walden also performs shareholder activism, which might include filing a proposal that the company start a sustainability report or perform a water risk assessment.
“We take them into our portfolio and work to make them better,” she said.
Taking Pride In Your Portfolio
While firms like Boston Common and Walden have focused on SRI since their inception, the greater availability of data and data service providers has provided an added incentive for larger and more traditional investment houses to roll out their own SRI solution.
U.S. Trust, Bank of America Private Wealth Management, has developed its own proprietary strategy for socially responsible investing, a methodology it’s termed “socially innovative investing,” or S2I, said Rob Pizzella, managing director and market executive.
The firm reviews U.S. companies across a wide spectrum of data and criteria, and it uses that information to develop different “sleeves” in which a client might invest. One client might want to choose the company’s “women and girls strategy” (companies that boast gender diversity on their boards and fairness of pay), while another might want to focus on environmental stewardship, and still another might want to zero in on firms that have a strong track record of LGBTQ rights.
“Part of it is being able to get the data. Part of it is that corporations are evolving and understanding stakeholder value,” Pizzella said. “And a lot of this has to do with people getting proud of what they own in their portfolios and how it reflects their own values.”
The SRI space also represents an attractive career focus – especially for the socially-conscious Millennial generation. In addition to her work at Walden Asset Management, Greenberg serves as the president of the Boston Area Sustainable Investment Consortium, or BASIC, which currently boasts around 630 members and 23 fee-paying corporate affiliates.
A big driver of the interest in working in SRI, she said, is simply the increasing client demand. Furthermore, the field has generational appeal for Millennials who want to “do well by doing good” in their careers.
“Beyond that, it’s just a sign of the times,” she said. “And there are a lot of reports coming out that this is the smart way to do investing.”
Email: lalix@thewarrengroup.com
