Some pundits say socially responsible investing is, for lack of a better term, horse pucky. If that’s true, there’s a lot of money in horse pucky these days.
Also called environmental, social and governance investing, it is getting more popular each year. What separates ESG is its moral agenda: putting your money into companies and funds that don’t harm the environment, are conducive to social justice and equality, and govern themselves in an ethically upright manner.
“These are investors willing to sacrifice some return to follow the belief system they want,” said Michael R. Melton, finance professor and director of the Center for Advanced Financial Education at Roger Williams University in Bristol.
Socially responsible investors tend to be younger. Millennials are said to be a target demographic. Unlike the hippies of yesteryear who advocated for rejecting the American establishment and materialism, SRI and ESG gives their millennial brothers and sisters a way to exercise their ideals without shunning the creature comforts of capitalism.
Of course, there are pundits who say SRI or ESG are merely marketing tools to lure willingly naïve investors who want to make a buck and feel good about it, too. Because it often involves more research on the policies and behavior of companies and their industries, pundits note it’s also good for the money managers because it justifies more fees.
Melton acknowledges the pundits’ points, but he argues that investing in a company that manages its affairs in a socially and environmentally “sustainable” way is good for both the company and its investors over the long term. Companies out to make a quick buck and cut corners to do it tend not to pay off as well in the long run, he says.
The explosion of SRI and ESG has curiously come in the aftermath of the worst financial debacle since the Great Depression. Deregulation, followed by a giant housing bubble, a banking crisis fueled by shoddy mortgages, and a massive taxpayer bailout of the financial system have led to what some analysts say has been the largest transfer of wealth from the lower and middle classes to the affluent in the nation’s history.
Many of the corporate perpetrators of the financial crisis today are leading the ESG charge. Bank of America, once vilified for its foreclosure abuses, has become one of the darlings of the movement.
According to the bank’s 2017 Environmental, Social, Governance Performance Data Survey:
• Since 2009, Bank of America has extended $910 billion in community-development lending and investments in the U.S., including about $54 billion in 2017.
• In 2017, Bank of America provided nearly $200 million in global philanthropic investments, including cash-giving and in-kind donations. To date, the bank has delivered nearly $1.9 billion toward its 10-year goal of making $2 billion in philanthropic investments from 2009 through 2018.
• In 2013, the bank launched a $125 billion Environmental Business Initiative, so far providing more than $66 billion in financing for low-carbon and other sustainable businesses.
• Since 2010, the bank has cut market-based emissions by 86 percent across its investment portfolio by consolidating space, taking on energy-efficiency projects and buying more renewable power.
Brown University in Providence got into the act just ahead of Bank of America. In 2007, The Corporation of Brown University, the university’s governing body, approved creation of an investment fund that complies with socially responsible criteria, called the Social Choice Fund.
Launched in 2008, the fund allows donors to make gifts to the university’s endowment through the fund, which is invested in a mutual fund that applies a “negative” screen for fossil fuel-related companies.
“No investments are made in companies involved in the extraction or production of coal, oil, or natural gas,” said Brown spokesman Brian Clark.
Then, in 2016, Brown launched the Sustainable Investment Fund, which allows donors to invest in companies that meet standards for ESG practices.
“This was established after a collaborative, student-initiated effort that included senior administrators, faculty and students in an undergraduate investing course focused on sustainability-based investing,” Clark said.
He wouldn’t say how the two funds have performed.
Meanwhile, Boston-based Fidelity Investments and Valley Forge, Pa.-based The Vanguard Group, two powerhouses of the mutual fund industry, this year began offering index exchange-traded funds with an ESG focus.
In just a few weeks, Vanguard’s two ESG funds have accrued $48.7 million in assets under management, said Vanguard spokeswoman Carolyn Wegemann.
Fidelity entered the ESG market just before Vanguard.
“Fidelity launched its Sustainability Bond Index Fund in June, which, alongside its U.S. Sustainability Index Fund and its International Sustainability Index Fund, make Fidelity the only firm to offer environmental, social and governance index mutual funds in every major asset class,” said Fidelity spokeswoman Meghan French.
Scott Blake is a PBN staff writer. Email him at Blake@PBN.com.
