Generally speaking, a traditional investment portfolio of 60% stocks and 40% bonds has a good historical track record and less risk. But this model assumes that the single goal is a financial return alone. Millennials want more than that. The largest generation in the world is demanding a socially responsible return as well, and it?s showing in the markets.
Instead of merely analyzing an investment by its performance and risk potential, Millennials are demanding a new menu of options that impact various environmental and social problems. This is resulting in the rise of socially responsible investment (SRI) opportunities.
What are SRIs?
Socially Responsible Investing is a strategy that aims to deliver competitive returns while trying to bring about environmental, social and governance improvements, and avoiding ventures that do harm. The degree of either investment or divestment in any specific category is up to the investor. For some, divesting from assault weapons is important, for others investing in water technology aligns with their beliefs.
The number of individual investors factoring sustainability issues into their investment decisions has increased. Asset managers are paying close attention to this demand. ?From Robo-advisors to 401(k)s, investments with references to SRI, ESG investing, sustainability, values-driven investing, corporate social responsibility, and sustainability are popping up everywhere.
Both Wealthsimple and Swell Investing are bringing opportunity to the retail level, opening up socially responsible investment opportunities beyond traditional vehicles and retirement fund options. The myth that you have to compromise your beliefs or values in exchange for a good return is being refuted by reams of research concluding that socially responsible investing does not have a negative effect on performance.
The term sustainability is gaining influence in the corporate and financial world. But what does it actually mean? The concept of sustainability recognizes that economic, social and environmental responsibility aren?t isolated from each other but interrelated. Sustainability is a shared value and a collective responsibility. A creative way to envision corporate sustainability is to break it down into 6Ps which can be creatively toggled to generate value-added interdependencies.
People – Building awareness, knowledge, skill and livelihoods.
Process – Turning compliance and regulation into an opportunity and making value chains sustainable.
Partnerships- Ensuring every member of the value chain shares the collective responsibility.
Product ? Designing and building sustainable products and services over their lifecycle.
Profit ? Innovating new business models to sustain growth responsibly and ethically.
Planet ? Minimizing our environmental impact and reducing dependence on limited resources.
There is no Plan(et) B. Until someone figures that one out, we need to sustain Plan(et) A and design thinking can certainly help the cause.
The term ?greenwashing? came about in the 1980s to describe the behavour of corporations who try to portray themselves as environmentally responsible, but aren?t. There are countless examples of companies who suggest that they have the environment at the heart of their values after making one small environmental move, yet a deeper look at their business practices shows that 90% of their moves as a whole are environmentally destructive.
How can we really know whether the companies we buy in to are making real, sustainable change, or whether they are simply riding the latest conscious trend while continuing to harm the planet?
Bayer became Monsanto’s sole shareholder but is ditching its tarnished name. Tarnished or not, Monsanto sold for slick $66 billion. Though Bayer is involved in many of the same activities, it has so far managed to escape the negative public perception in Europe that its American counterpart has.
“Suffice to say that Bayer enjoys an excellent reputation and appeal worldwide. We must take advantage of that.” – Werner Baumann, CEO Bayer
However, Katherine Paul, associate director of the Organic Consumers Organization that organizes the Millions Against Monsanto movement, says the rebranding effort will not cause the anti-GMO campaigners to lose focus.
We can easily move from our ‘Millions against Monsanto’ campaign to a ‘Billions against Bayer’ campaign. – Katherine Paul, Millions Against Monsanto.
A toxic mix – Widely used around the world but highly toxic for people and planet.
Opaque Lobby spending – In the EU and the US, both Bayer and Monsanto have to declare their lobby spending in so-called transparency registers. But these figures only cover direct lobbying in the capitals. Many other costs lurk beneath the surface.
Lobby network bends safety standards – Agribusiness corporations like Monsanto and Bayer have built a vast network of influencers to bend EU laws and safety standards in their favor.
A food system under corporate control –Our current model of farming and food consumption is destroying the planet and hurting people.
The package deal: patented, weedkiller-addicted GM crops – A substantial part of Bayer?s and Monsanto?s business comes from genetically-modified (GM) seeds that have been engineered to tolerate the companies? herbicides.
The BaySanto lobby tool box – Both Monsanto and Bayer use a wide range of lobby strategies to rig EU pesticide regulation in their favour.
Conscious Capitalism In The News:? Invest in water – win the long game, How ESG can protect your portfolio, Bud rebrands to Green Beer, A warning to all businesses:? Be sustainable or risk your bottom line, and more…
Water-related ETFs are in an advantageous position due to some pretty serious situations.
For example, PowerShares Water Resources ETF (PHO), First Trust ISE Water Index Fund (FIW) and Tortoise Water Fund (TBLU) hold?shares in U.S. water utilities, such as American Water Works, infrastructure companies like Aegion Corporation?and technology companies like Xylem, a supplier of energy-saving pumps and controls for hot water systems.
All 3 water-related ETFs are up around 15% since last year.
…there’s really not a much more essential asset than water…people are really starting to realize we have a global water problem on our hands -?Matt Weglarz, Portfolio Manager at Tortoise Index Solutions.
Global water demand is expected to grow by more than 50 percent over the next 30 years. In 2015, the EPA estimated that we need $472.6 billion to fix America’s public water infrastructure system alone.
Flint, Michigan, is still waiting…
There is?opportunity for investors to capitalize on clean water infrastructure and technology over the long term because of the need to upgrade and maintain water systems across the U.S.
The Swell Clean Water portfolio is a managed portfolio of water-focused companies which is up 11% over the past 12 months.
Whether it’s through news about water scarcity or news about the demand for water or need around improving our water infrastructure, those are all reasons that you would want to be in a clean water portfolio of companies that are addressing any one of those areas. -? Dave Fanger, CEO of Swell Investing.
Anheuser-Busch has officially promised that the $400 million worth of electricity it uses each year will be 100% renewable by 2025. It has also vowed to follow through on sustainability goals which include plans to:
Repackage beverages in majority-recycled content
Improve water efficiency
Work directly with farmers
Reduce carbon emissions by 25%.
In celebration of its new vision, starting on Earth Day, it has labeled all of its cans and bottles of Bud with a new ?100% Renewable Electricity? symbol to make consumers aware of its new goals.
This labeling strategy builds awareness, sparks conversation about what exactly it means to be sourcing clean energy, and offers a gateway to the bigger discussion that consumers?particularly millennials?increasingly expect. The challenge is for the company to maintain transparency everywhere, even with more challenging questions.?- Christen Graham, Social Impact Executive
Anheuser-Busch CEO Carlos Brito has proclaimed that ?Budweiser is going to be carrying the flag for renewable energy around the world.? However, when a company does not follow through with its corporate social responsibility promises, it amounts to greenwashing.
Will Bud follows through with its promises? In fact, it may not have a choice.
Whether beer brewers rebrand as green and fly ?the flag for renewable energy or not,? they are going to have to not only rethink their sustainability strategies, but actually carry them out in order to survive. Issues of water scarcity and water quality currently pose particularly serious threats to the survival of food and beverage industries around the world.
Much like the shift we went through when turning our backs on smoking and littering, we?re clearly in the middle of a massive cultural shift when it comes to sustainability. Just as we find it abhorrent to throw litter out of a car window, it is now becoming unacceptable to buy products from companies deemed to be mistreating the planet.
What this means for companies is that if they don?t start integrating sustainability and corporate social responsibility into their business model, products, and brand, they are definitely going to feel it in their bottom line.
45% of Americans want to be seen as someone who buys eco-friendly products.
Over 50% of Americans don?t believe a product is green if they don?t believe the company is green.
Over 50% of Americans can think of a time when they?ve either purchased or not purchased a product because of the environmental reputation of the manufacturer.
When it comes to Millennials, these trends are even stronger:
90% say they?ll buy from a brand if they trust that company?s social and environmental practices.
95% say they?ll recommend the products to their friends and family if they trust a company?s social and environmental practices.
We?ve come a long way. Being eco-friendly is no longer considered a fringe activity limited to activists and early adopters. Joining the dialogue and aligning your brand with deeply held beliefs is the marketing of the future.
Business must be part of the solution…Sustainable, equitable growth is the only acceptable business model. – Unilever
Bottom line:? Don?t smoke, don?t litter, and be a sustainable brand ? or risk losing your marketplace advantage.
In this interview, Martin Kremenstein, head of retirement and ETF solutions at Nuveen, defines ESG (Environmental, Social and Governance) and explains how ESG metrics serve both as an indicator of quality, and can be used as a risk management tool. Some takeaways:
According to research from MSCI, companies ranking in the lowest 20% in ESG ratings have been twice as likely to suffer a catastrophic loss (over 95% cumulative loss) within three years.
MSCI downgraded Equifax to the lowest ESG rating on cybersecurity concerns one year before?the data breach was announced.
Facebook was excluded from Nuveen’s NuShares ESG Large-Cap Growth ETF when the ETF launched in December 2016 because Facebook scored relatively poorly over data privacy concerns compared to other tech companies.
Before the Deepwater Horizon incident, BP had actually been downgraded and removed from major ESG indices over concerns about its outsourcing of maintenance of offshore oil wells, which was directly related to the accident itself.
By actually having this framework in place, you are really putting in place a method for trying to avoid tail risk from companies that are badly run, and may end up having serious, serious scandals in the press. -?Martin Kremenstein, Nuveen.
South Australia, the Australian Capital Territory, Tasmania, and the Northern Territory, have state-wide bans on single-use plastic bags. Queensland is set to follow suit in July 2018. Major Australian supermarkets Coles and Woolworths have announced they will phase out single-use plastic bags by mid-2018.
This week’s conscious capitalism in the news: Impact investing -?What is it? Can anybody do it? Greenwashing -?What is it? Who’s doing it? How can you spot it??A tsunami of women impact investors on the horizon, The Gap Inc. steps up its sustainable water game, and more…
Traditionally, we pay our bills, make our investments, and perhaps, if we have something left over, write a check or two to our favorite charity. Impact investing takes care of the last two in this list. Combining philanthropy and investing gives us the opportunity to both vote with our dollars and generate a return.
What is impact investing?
Impact investments are investments made into companies, organizations, and funds with the intention to generate measurable social and environmental impact alongside a financial return. – GIIN
Impact investing opportunities generally involve organizations that have a stated mission or purpose. This could be anything from creating affordable housing domestically, providing clean water to those without it in developing countries, or reducing the pollution in our oceans.
Do I have to be an accredited investor to participate?
No. Anyone can do it. There are several ways everyday folks who are not accredited investors can take advantage of generating returns (both monetarily and materially) and making an impact in an area they care about.
Mutual funds, ETFs, and Separately Managed Accounts
There are increasingly more and more mutual funds that promote environmental and social causes. More recently, financial technology has made investing in green or socially responsible mutual funds available to everyone without the need for a broker. Companies like Swell offer investment opportunities for as low as $50.
Community Supported Agriculture (CSA) initiatives are steadily increasing across the country. Put simply, an investor subscribes to a particular community farming organization, or harvest, and receives, as a return, food directly from them. This paradigm cuts out the middlemen and gives investors access to fresh, healthy food. (Look into any CSA initiatives in your area.)
Microfinancing provides small loans towards projects that have a social return. It could be providing microentrepreneurs at the base of the economic pyramid with small business loans. It could be providing funding for a new school in a small developing corner of the world. There are a myriad of opportunities out there. Google away. Microfinancing institutions connect the investor to the project so that you can invest in a space that you both believe in and believe has the potential for financial success.?
Buying shares in green tech supports a needed move away from fossil fuels in a competitive and booming industry. These opportunities can range from solar, wind, geothermal, and hydro to efficient building materials, energy storage and more. This space is growing rapidly and offers a variety of options.
We have the tremendous opportunity to not just keep pace with the traditional capital markets, but to reinvent them entirely. The decisions we make today have the potential to shift attitudes, transform systems, and build the sustainable economy of the future. – GIIN 2017 Annual Impact Investor Survey
The buzz in the investment world about women investors is that because women are generally more likely to search for products and companies with connections to what is important to them, they are also more likely to engage with investments where issues of social responsibility and the environment are prioritized.
It is said that women investors generally tend to take a more holistic approach to investing as they are more interested in investments that support their values in tandem with financial returns.
A study?of women aged 25 to 70 with household income over $75,000?by Calvert Investments?reflected that 95% of ranked “helping others,” and 90% ranked “environmental responsibility,” as important.
Currently, women control 51% of the personal wealth in the United States. That $14 trillion is expected to rise to $22 trillion by 2020.
Meanwhile, Impact investing has grown into a multi-billion dollar market. The Global Impact Investing Network (GIIN) anticipates that impact investing market will continue to expand to $500 billion by 2020.
An increasing number of companies are working towards attracting women investors who are committed to seeing social and environmental returns along with their financial returns. And they are using social media and influencer marketing to do it.
The coupling of a new breed of investor with a new breed of investment vehicle, both of which prioritize environmental, social and governmental concerns, is a potential tsunami push for creating social and environmental change within the markets. If the financial experts making these predictions are correct, we should see some exciting stuff happening soon.
The Roadmap details six categories of action to drive progress:
Strengthen the identity of impact investing by establishing clear principles and standards for practice;
Change the paradigm that governs investment behavior and expectations about the responsibility of finance in society via asset owner leadership and updated finance theory;
Design tools and services that support the incorporation of impact into the routine analysis, allocation, and deal-making activities of investors;
Develop products suited to the needs and preferences of the full spectrum of investors, from retail to institutional and of various types of investees;
Increase the supply of trained investment professionals and the pipeline of investment-ready enterprises through targeted professional education;
Introduce policies and regulation that both remove barriers and incentivize impact investing.
The Roadmap also discusses broader trends that will affect investing overall such as automation, fintech, blockchain, big data, crowdfunding, and wealth transfers to women and younger generations. While the report acknowledges the distance that impact investing has come over the last decade, it does not shy away from the challenges facing our world today.
Notwithstanding the progress to celebrate in the impact investing industry, the needs to address continue to loom large. Exploding inequality is kindling great political turbulence in many parts of the world, even as close to a billion people live in poverty .- Roadmap for The Future of Impact Investing, GIIN.
Since 2014, Gap Inc. projects have saved more than 2.4 billion liters of water. Recently, Gap Inc. has announced a new goal of saving 10 billion liters of water by the end of 2020 – ?the equivalent of the daily drinking water needs of 5 billion people – by committing to continue both product innovation and efficiency improvements at fabric mills and laundries.
In addition, Gap Inc. is taking action globally to reduce its environmental footprint in its retail operations and across its supply chain. It has committed to a 50% reduction of greenhouse gas emissions in its owned and operated facilities globally, and to divert 80 percent of its waste in the U.S. from landfills by the end of 2020.
We believe that access to clean and safe drinking water is a fundamental human right, so we strive to ensure that the process of making our clothes is safe for people and communities. It?s not only the right thing for people and the planet, it?s also crucial for our business growth. – David Hayer, Senior Vice President of Global Sustainability and President of Gap Foundation at Gap Inc.
Environmental, social and governance (ESG) indices are sometimes overgeneralized in the media as a mere trend from the conscious capitalism movement?when in reality, they are a superior form of risk management.
Projects such as mining, fossil fuel extraction, chemical plants, pipelines, and factories carry intensive risk that can not only affect the environment, employees and surrounding inhabitants, but also investors. One need not look any further than the BP Horizon incident which destroyed shareholder wealth by 55% and resulted in billions in fines.
Banking and insurance industries are particularly interested in being able to access information on infrastructure projects. And corporations themselves are increasingly interested in monitoring and evaluating their own ESG risks in their supply chain.
RepRisk is a global business intelligence provider for due diligence on ESG and responsible business conduct risks. Using AI and human analysis, Reprisk focuses on companies and projects exposed to ESG risk. Reprisk has now included new data on over 25,000 projects in addition to over 100,000 private and public companies. Data is key in evaluating ESG risk for all stakeholders.
Business conduct risks related to human rights, labor, the environment, and corruption can now translate into reputational, compliance, and financial risks for a company. – RepRisk
BP rebranded from British Petroleum to Beyond Petroleum, but it is still predominantly an oil and gas company. Now the Norwegian company Statoil is proposing to change its name to “Equinor.” The rebranding will cost? $32 million. Why are oil companies doing this?
Some oil companies have been attempting to distinguish themselves as ?energy companies? rather than ?oil companies? under increasing public scrutiny. In short, while the companies themselves change very little, they hope that the public perception of them will change. This is called greenwashing.
Statoil, stated that it intends to ?build a material industrial position within profitable renewable energy, and expects to invest 15-20% of total capex (capital expenditure) in new energy solutions by 2030.? So, what they are really saying is that in 12 years they plan to have a capital expenditure that is at least 80% fossil fuels.
Last October, San Francisco Bay Gourmet Coffee (owned by Costco and JBR Inc.) unveiled it?s compostable? Keurig-compatible ?No Waste OneCup.? At the time, the company labeled the ?OneCup? coffee pods as a ?No Plastic Cup,? but the ring, mesh, and part of the lid were all made of plant-based plastic.
California has a complete ban on biodegradability claims tied to any products containing plastic. A lawsuit was filed against Costco by 25 California district attorneys? offices.
In addition to paying the $500,000 in civil penalties and costs, Costco and JBR Inc. can no longer sell plastic coffee pods advertised as ?biodegradable? in California. In addition, they must obtain specific scientific certification in order to sell any pods advertising the ?compostable? label.
California consumers trying to help reduce the problem of plastic waste in landfills are often misled to believe that plastic products labeled as ?biodegradable? will break down in municipal trash. – ?Alameda County District Attorney Nancy O?Malley
Greenwashing occurs when a company spends money to try and appear ?green? via advertising and marketing without implementing business practices that avoid or minimize destructive environmental and/or social impacts. “Eco-friendly” is all the rage today, so companies may market as ?eco-friendly? whether they are or not. This leaves it up to the consumer to determine whether companies are living up to their claims.
A Canadian-based environmental marketing agency has developed a seven-part test to evaluate green claims. TerreChoice?s ?Seven Sins? of greenwashing can give you an idea what to look out for:
The Hidden Trade-off: ?A product that claims to be ?green? in one aspect, but isn?t in another. For example, paper from a sustainable forest that was processed using chlorine.
No Proof: ?An environmental claim that cannot be substantiated by easily accessible supporting information, or by reliable third-party certification. For example, tissue that claims a certain percentage of post-consumable recycled content without any evidence.
Vagueness: A claim that is so poorly defined or broad that its real meaning is likely to be misunderstood. For example, the phrase ?all-natural.? Arsenic is naturally occurring, too.
Worshiping False Labels: A product that uses words or images to give the impression of a third-party endorsement where no such endorsement exists. For example, a green leaf on a detergent bottle that is not a reputable certification, but merely an icon. Make sure certifications actually mean something. Green Seal, Energy Star, EcoLogo, USDA Organic and FSC (Forest Stewardship Council) are reputable labels.
Irrelevance: An environmental claim that may be truthful but irrelevant. For example, ?CFC-free? is a frequent claim despite the fact that CFCs are banned by law.
Lesser of Two Evils: ??Organic cigarettes,? or ?fuel-efficient? SUV.
Fibbing: Environmental claims that are simply false. For example, products claiming to be Energy Star certified that aren?t.
The trend toward ‘eco-friendly’ or ?green? products is a good one. Unfortunately, not all companies will color?within the lines. Take a closer look at the claims companies are making and decide for yourself whether or not you buy them.?