Traditionally, if you wanted to do good works financially, you donated to charity or a foundation. Today, you can make a societal impact by investing money in companies or funds that both align with your personal values and perform as well as traditional investments.
In fact, $1 out of every $6 of U.S. assets under professional management last year— a total of $6.57 trillion — was invested in some form of “sustainable” investment. In 2012, it was $1 out of $9. That’s a 76 percent increase in just two years.
Aligning investments with values
The concept of aligning investments with personal values isn’t new. When the Quakers held an annual meeting in Philadelphia in 1758, they prohibited members from financially participating in the slave trade.
The modern era of impact investing began during the politically charged era of the 1960s. Socially concerned investors wanted to address civil rights, labor issues and equality for women — and money started to become a powerful tool to effect change.
Soon, several corporations began integrating social, environmental and governance practices into their businesses that resulted in positive results that went beyond profit. They reported these activities in sustainability reports made available to investors.
As a financial advisor at Morgan Stanley, I started focusing on this area in 2001; Morgan Stanley launched its” Investing with Impact” platform in 2013.
While sustainable investing aligned with my own values and those of many of my clients — and was becoming increasingly popular in Europe and Australia — I wondered how long it would take for it to be recognized as the frontier and not the fringe in the U.S.
Key drivers in sustainable investing
A recent Morgan Stanley Institute for Sustainable Investing survey wanted to identify the key drivers of sustainable investing, which it defined as the practice of making investments in companies or funds that aim to achieve market-rate financial returns while pursuing positive social and/or environmental impact. The survey found those on the leading edge of adoption is millennials and women.
Millennial investors are more focused on sustainability than the overall investor. They are twice as likely to invest in companies or funds that target specific social and/or environmental outcomes (e.g. cleaner air and water) and divest because of activities they object to (e.g. fossil fuel production).
Women are almost equally as interested — 76 percent of female investors surveyed showed interest compared to 62 percent of male investors. Meanwhile, the roles of women are increasing within business and investment environments. American women control $11.2 trillion in investable assets, or 39 percent of the nation’s total.
Impact and performance
One question I often hear is whether investing with impact means sacrificing performance. Research shows that investing in sustainability has usually met — and often exceeded — the performance of comparable traditional investments. This is on both an absolute and a risk-adjusted basis, across asset classes and over time, based on Morgan Stanley’s recent review of U.S.-based Mutual Funds and Separately Managed Accounts.
If you’re interested in putting your money where your heart is, take some time to explore what type of impact you would like to make. Then talk with a financial advisor who’s familiar with sustainable investing.
Mark C. Callaway is Senior Vice President and Financial Advisor with The Indigo Group at Morgan Stanley, Atlanta.
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