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Christopher: Opportunities for Sustainable Investing – The Time has Come!

Did you know that in 2014, there was over $21 trillion (T) in global sustainability assets under management worldwide (1)?  The amount of these investments has increased rapidly and now surpasses the debt levels of the United States!  Moreover, were you aware that $1 out of every $6 invested in the U.S. during 2014 was placed in sustainable investment strategies?  These expenditures now total $6.57T according to the Forum for Sustainable and Responsible Investment (2).  Also, these tracked investments were 75% greater than in 2012 which totaled $3.74T. The growth of sustainable investing is being driven by the increasing demand for organizations to address environmental, social, and governance (ESG) criteria, as well as the overall desire for improved sustainability performance by shareholders and stakeholders alike.  Today investors are also looking to divest specific assets because of sub-par performance. Additionally, investors are shifting to sustainable investment strategies to generate tangible value and growth.  The track record of sustainable investing now substantiates their belief!

For U.S. sustainable investing, the general overall breakdown is:

  • ~ $4.3T in ~ 925 sustainable investment funds such as mutual funds including community investments
  • ~$1.9T under sustainable management that includes mutual funds, variable annuities, exchange traded funds (ETFs), closed end funds (CEFs) etc.
  • ~ $64B in sustainable community investing that includes community development banks, credit unions, venture capital funds etc.

It should be noted that this breakdown does include some overlapping assets. What then are some of the sustainable investing strategies that management can take, as well as individuals (3)?

  • Negative or exclusionary screening: Currently, this step is the number one strategy used by many and addresses individual as well as corporate concerns. For example, some are concerned with organizations that engage in tobacco, defense, coal, and fossil fuel related businesses etc. Given the option, many can place their investments elsewhere today.
  • ESG and sustainability integration: This strategy is the second most popular approach used for sustainable investing. Rather than just picking a single company for this type of investment, there are currently numerous related mutual funds available that offer a portfolio of companies that address environmental, social and governance criteria and integrate sustainability across their operations. Examples of these mutual funds include Pax, Calvert, Domini, Ariel, Praxis, Neuberger Berman, TIAA-CREF, and many others.
  • Positive or best in class: Investors can now look to the Dow Jones Sustainability Index to provide those best in class companies and sectors based on tracked and benchmarked sustainability performance.
  • Impact Investing: For those desiring to invest in their local community and entrepreneurial businesses, microfinancing opportunities abound. Two websites that offer these opportunities that meet individual sustainability criteria include Kickstarter and Kiva. For a minimal investment individuals can now support the growth of their local economies, as well as individual start-up businesses.

 

  • Sustainable themed investments: The marketplace today provides a portfolio of sustainable investments based on areas such as clean technology, climate risk and resiliency preparedness, sustainable agriculture, sustainable fishing, and sustainable forestry. The use of green bonds has grown substantially in areas including renewable energy, energy efficiency, carbon mitigation, and sustainable water. These sustainable investment areas will drive future growth and job opportunities in the economy.
  • Program based Investments: West Michigan is fortunate to have a number of foundations including Kellogg, Frey, Wege, Dyer-Ives, DeVos, as well as many others that provide and support sustainability related grants and programs on an on-going basis.

When making investment decisions based on a company’s or organization’s sustainability performance,  the major reasons include long-term value creation, increased revenue, improved operational performance, effective management, compliance, community engagement, and reduced risk. Today the sustainable investment options are numerous and attractive. The difficulty may be in which one to choose.

I wish you the best on your sustainability journey!

Norman Christopher

Director, Office of Sustainability Practices

Grand Valley State University

 

Source:

  • Global Sustainable Investment Review, gsi-alliance.org
  • Investing for a Sustainable Future, MIT Sloan Management Review, May 2016
  • Decoding the Elements of Sustainable Investing, JP Morgan