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Catch the impact investing wave now

It's surprising that most advisers remain agnostic about impact investing, even while client demand grows

Mar 8, 2015 @ 12:01 am

Advisers worth their salt — or the fees their clients pay them — rightly consider themselves leaders. Most pride themselves on being able to answer nearly every question from clients. These advisers know their clients deeply and provide investments that match their goals and dreams. They come up with ideas that clients may not have heard of before. These are the top performers and industry leaders.

That's why it was surprising to find that most advisers remain agnostic about impact investing, even while client demand grows.

As Liz Skinner reported in her cover story March 2, a survey by First Affirmative Financial Network of about 1,900 advisers who don't specialize in socially responsible investing found that nearly half offer or have offered an impact investment option; almost 70% of those said they did so because clients asked for it.

(More: Advisers slow to embrace socially responsible investing)

It's good to respond to clients, but better to be proactive.


The growing interest in socially conscious investing cannot be ignored. From 2003 to 2012, SRI assets in the U.S. rose 54%, to $3.31 trillion, according to a report from the Forum for Sustainable and Responsible Investment. It also said U.S. sustainable, responsible and impact investing assets under management reached $6.57 trillion at the beginning of 2014, up 76% from 2012. That total accounts for nearly 18% of the $36.8 trillion in assets in U.S. funds.

Globally, impact investing, a subset of SRI, was forecast to rise 20% last year, to $12.7 billion, according to a report from the Global Impact Investing Network.

Laurence Fink, president of BlackRock Inc., recognizes how important impact investing has become.

“Clients are looking to measure the returns on their investments both by the societal and financial outcomes they can help create,” Mr. Fink said last month, when his company launched a business unit to house its $225 billion in values-based strategies and develop more products.

From money managers to custodians to broker-dealers, firms are offering products and platforms that give advisers the access they need to these strategies.

Some advisers — perhaps ones unwilling to put in the effort required to offer appropriate impact investing options — argue performance to explain why these products don't make sense.

But that's a bogus claim. Simply put, SRI does not underperform traditional investing.

Last year, TIAA-CREF Asset Management picked five widely known U.S. equity SRI indexes with track records of at least 10 years and compared their returns with those of two common U.S. equity indexes, the Russell 3000 and S&P 500. It also looked at volatility and risk-adjusted returns. The result?

“Our analysis found no statistical difference in SRI index returns compared to the two broad market benchmarks,” its report said. “SRI can achieve comparable performance over the long term without additional risk, despite using a smaller universe of securities meeting [environmental, social and governance] criteria.”

If performance isn't enough, advisers should consider another important point: Two constituencies vital to ensuring the long-term success of your firm — women and millennials — have embraced SRI.

In findings from its annual survey of U.S. investors, the Center for Audit Quality reported last October that 40% of women are inclined to invest in companies that operate in a socially or environmentally responsible way, versus 29% of men.

And Sallie Krawcheck, speaking late last year to Progressive Asset Management, said: “After years of dismissing values-based investing as a fringe activity, I have changed my view. It has moved from its early days of having to give up return in order to invest one's values to something that can be value-enhancing.”

Certainly, finding the right investments — be they funds, companies or specific projects — takes hard work, and the due diligence is no cakewalk. But doesn't it make sense for you to be ahead of this wave? Because it's not rolling back anytime soon.


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