Demand from investors is driving significant growth in sustainable, responsible and impact (SRI) investments. More than one in every five dollars of professionally managed assets in the US incorporates environmental, social and governance (ESG) factors. A recent article from CEO Lisa Woll of the US SIF (The Forum for Sustainable and Responsible Investment) highlights this growth and attempts to answer why most financial advisors are still not helping their clients utilize these investments to match their values with their portfolios. This article (SRI Outlook) was featured in Wealth Management Magazine’s mid-year outlook.
There seems to still be a disconnect between the demand by investors and the use of SRI by financial advisors. Woll summarizes some of the reasons why this might exist. If you’ve read some of our past posts, you might be able to guess the first reason she lists . . .
Performance! I know, I know, you’d think this dead horse would be buried by now! We’ve written many times of the research from numerous studies showing that SRI investors do not necessarily have to give up returns.
Woll addresses the misnomer clearly in the article stating: “The evidence is clear that sustainable and responsible investors who align their investments with their values, or avoid companies with poor ESG practices do not sacrifice performance to do so. In fact, incorporation of ESG factors has been shown to reduce risk and enhance performance across asset classes.” A compilation of performance studies is available at USSIF.
Other factors causing hesitation by advisors include concerns over constructing portfolios across all asset classes. Although this might have been a legitimate problem a decade ago, the growth of SRI in asset totals has been equaled by growth in products, managers, and mutual fund companies offering a wide range of choices.
If this information interests you, you might also appreciate taking a look at the comprehensive report regarding the state of SRI produced by US SIF last year. This research report can be found in the Resources section of our website.