Commodities - JULY 21, 2015

Making an impact

by Sheila Hopkins

Green investing. Sustainable investing. Socially responsible investing (SRI). Environmental, social and corporate governance (ESG) investing. Impact investing.

No matter how it is described, a movement is slowly taking hold among investors. They no longer want to invest simply for returns. They want to invest to do good while realizing those returns. In the past, investors wanting to do good often simply avoided investments in companies that were involved in activities at odds with their values. Now, they are not just avoiding coal, blood diamonds and tobacco, they are looking to promote positive change by supporting investments that support their values, such as firms that use sustainable farming practices or environmentally sustainable building management practices or ethically sourced raw materials.

According to the 2015 U.S. Trust Insights on Wealth and Worth, an annual U.S. Bank survey of high-net-worth and ultra-high-net-worth U.S. investors, 33 percent of participants either own or are interested in owning social impact investments. Millennials, women and those with the greatest level of wealth are most committed to using investment decisions to express values. Among all respondents, slightly more than half feel that ESG investing is important to their investment decision making, but that figure jumps to 71 percent and 85 percent, respectively, when you only count women and millennials.

Given that millennials are the largest cohort in history and just coming into their prime earning and investing years, and the wealth held by women is growing each year as well, the interest in impact investing amongthese two demographic groups bodes well for sustainable investing.

The younger generation is more focused on saving and investing than previous generations have been, primarily because they have seen what the global financial crisis did to their parents’ retirement plans. They want a different future, both in terms of amassing a retirement nest egg and making the world a better place in which to use that nest egg.

“Over the next two decades there is a pending $41 trillion wealth transfer that has got millennials thinking about the future,” says Michael Sidgmore, founder of NextGenEngage, an organization that connects next generation investors and educates them on impact investing. “Unlike the other generations, millennials do not consider philanthropy and investment mutually exclusive.”

The U.S. Bank study also found 79 percent of millennials either own or are interested in owning tangible assets such as land, real estate and timber, and are more interested than any other age group in using private equity and hedging strategies.

With these data points in mind, looking to the future — as more women gain more control of family investments or become wealthy investors in their own right, and as today’s 20- to 30-year-olds become wealthier and more avid investors with age — ESG investing could well become simply the way most people invest. And it makes sense to believe that these investors will begin to demand that managers offer products that combine their two interests — ESG and real assets.

“We think a time will come, and it’s not too far away, when no discernible distinction will exist between investors in ESG and investors in general,” says Jason Baron, managing director and portfolio manager at U.S. Trust. “We believe that eventually there will simply be ‘investing.’ ”

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