Mike Brooks, Senior Consultant
Recently, on World No Tobacco Day, 54 investment companies pledged their commitment to tackle the societal impacts of tobacco, and subsequently sold any outstanding tobacco stakes.
Tobacco has been a great investment over the last decade, with shares rising a whopping 351% over that time. Most likely those investments would have continued to make significant gains for the firms who divested from them. Although it isn’t a grandstand, monumental statement of intent (tobacco being the softest option of the ‘sin stocks’, defence or oil less so) it does bring the rise of Sustainable, Responsible and Impact (SRI) investing into sharp focus.
Green is the new black
In the US SRI investing has increased by 33% over the past two years, and 14-fold since 1995. It’s now worth £1.5bn in the UK too. Of course, it would be short sighted to assume that this is motivated purely by good intentions on money managers’ behalves. The rise of green energy and its enormous projected sector value, part of the even larger and fast growing spectrum of clean technology, present both an excellent opportunity for long term profits, whilst creating significant environmental and societal benefits in tandem.
The demand of institutional investors for more ethically minded allocation of funds is largely being driven by their clients and individual investors themselves. It follows that if one is in a position to invest, and of a more global implication focused mindset, one would consider precisely where your money is going and the ultimate impact you are having around the world.
Leading the way?
83% of institutional investors are concerned with a company’s mission or values when making an SRI investment. Some firms already have a solid foundation to address this. Take an outfit like Candriam – they publicly and prominently display their values alongside their logo. Although they’ve been around for more than 20 years, it’s only relatively recently they and companies like them have found themselves in an increasingly desirable position to attract new waves of ethically minded investors. And as the market continues to catch up and others develop new competing products, their USPs may soon be under threat. The test will be finding smart ways of succinctly communicating credibility through a strong and respectable brand that stands above the inevitable rise of the “me-toos”, naturally whilst delivering strongly on the numbers.
It’s not just the pureplay SRI wealth managers who are in on the action either. St James’s Place’s Ethical funds were launched in the late 90s and earlier this year publicly declared their commitment for more ethically focussed investing, citing the growing desire amongst their clients for the environmental, social and governance (ESG) implications of investments to be considered. As the global conscience of the deep pocketed deepens, there’s a slightly different nuance to the brand challenges they and others like them face: What’s your viewpoint – and if you have one, does it contradict your other fund activity?
There’s implications for start-ups too, which face almost an opposing issue looking for seed or angel funds. The startup market is awash with social enterprises, packed with good intentions but often soft on commercials. If your business plan doesn’t include a solid business, you simply can’t deliver the desired ESG benefits and take advantage of the increased desire for SRI investments. Philosophically challenging perhaps, but economically irrefutable.
“Cost goes before the profit” – Dutch proverb
The market is only heading one way: investment decisions will be increasingly guided by ethical concerns. And as the much hyped, more globally minded, millennial generation come to maturity over the next decade, the trend is likely to accelerate. For wealth managers this has real strategic brand implications. Products and services designed for SRI investments need to feel credible – not just a loose addition tacked as an additional service, or face being more closely scrutinised by their audiences.
Establishing that credibility and authenticity starts from the ground up. Wealth brands should be looking at the very core of their service offering and identifying if and where they’ve fallen behind the playing field. Re-assessing what it means specifically to them to be a “good” investor, and how they can live that through refreshed, cohesive and sustainable brand values, and a mission and vision assuaging the desires of the market will be critically important to get to the front of queue in attracting the ethical investor.