Sustainable investing has started to gain traction in the media and among certain segments of the population. While the concept of sustainable investing can be sometimes nebulous, as well as tricky to understand, there has also been an increasing number of studies and analysis on the topic to better clarify and explain its features and benefits.
The Morgan Stanley Institute for Sustainable Investing is one such group, and it released a report in February based on a study, “Sustainable Signals: The Individual Investor Perspective.” In it, researchers discuss how sustainable investing is starting to show signs of being a benefit to investors, along with what certain segments of the population think about the concept.
What is sustainable investing? Morgan Stanley’s study defines sustainable investing as “the practice of making investments in companies or investments which aim to achieve market-rate financial returns while pursuing positive social and/or environmental impact.”
For years, investors looked solely at a firm’s financial performance and determined if purchasing stock was worth it based on if the company was profitable. That is still the case today, but now some are examining more than just dollars.
Instead of just looking at a stock price, investors are starting to ask how a firm impacts society as a whole. A company may be making money, but if it’s negatively impacting society or the environment it may not be sustainable over the long term. Not only are people becoming more aware of doing business with companies that make a positive impact, but these “win at all costs” firms open themselves up to huge potential environmental and/or social problems that could cause a massive public relations hit, legal costs, or at worst, loss of life. These factors can and do cause investors to look elsewhere.
There is an ‘underrealized opportunity’ in sustainable investing. To some, investing in a company that is able to function without taking more than it gives seems like something worth looking into, as the Morgan Stanley study shows 71 percent of individual investors are interested in sustainable investing.
Others, though, aren’t so sure. This group of investors needs concrete evidence that their dollars are not only doing good, but growing. In fact, the study shows that 54 percent of investors believe “choosing between sustainability and financial gains is a trade-off.” That means half of those think that it’s an either-or scenario, and to invest in a company that is socially responsible is to essentially watch your profits shrink with its carbon footprint.
Investment firms are, however, becoming more aware of this and starting to educate investors on where to look and what to look for to help prove that sustainability doesn’t necessarily mean unprofitability.
Millennials are on board with sustainability. There is one group in particular that aligns with this concept more than any other. The study shows that an astounding 84 percent of millennials are interested in sustainable investing.
But not only that, it’s actually built into the way they think and live. Morgan Stanley’s study shows that compared to the overall investor population, millennials are almost three times as likely to look to work for a company and almost twice as likely to buy from one because of its social and/or environmental practices.
This shift in purchasing habits and personal interest will carry over into the near- and long-term future of investing. Some of the oldest millennials are now just starting to get out from under student loan debt, and they are beginning to invest. They are only now getting a chance to begin investing with the same mindset.
Women lead men in sustainable investing interest. The Morgan Stanley study shows, in various ways, women lead men in terms of their interest in sustainability. Here are just a few figures from the study:
— Overall interest in sustainable investing: 76 percent of women versus 62 percent of men.
— Consider rate of return and social responsibility in investment decisions: 40 percent of women versus 23 percent of men.
— Believe that good environmental, social and governance screening practices can lead to higher profitability and better long-term investments: 77 percent of women versus 61 percent of men.
These facts start to paint a telling picture of where women see socially responsible investing. Why is this important? As the study points out, women control about $11.2 trillion in assets (39 percent of the nation’s total investable assets). This will almost assuredly shift dollars from traditional investing to sustainable investing.
Where to go from here. As the study reveals, “assets utilizing sustainable investing criteria have grown 76 percent in the last two years to $6.57 trillion.” This alone would encourage one to believe that sustainable investing is going to become more mainstream and easier to take part in over the next few years.
If you’re interested in learning more about how to integrate a more sustainable approach into your portfolio, consult your trusted financial professional.
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This material is for information purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Past performance does not guarantee future results. Diversification and asset allocation do not guarantee positive results. Loss, including loss of principal may result.
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The Rise of Sustainable Investing originally appeared on usnews.com
