Sustainable investing is gaining traction in the US and overseas. When viewed just through the prism of mutual funds and ETFs, assets sourced to sustainable investing have reached over three-quarters of a trillion dollars in the US alone.
To be exact, combined assets expanded to $763 billion as of June 2019, or an increase of 205% in just the last one-and-a-half years.
The growth and development of this market segment have been driven by institutional investors who seek to achieve positive societal outcomes with their significant asset base while at the same time committed to realizing market-based rates of return.
In turn, many conventional asset managers have been responding with new and rebranded mutual funds, ETFs and separate account product offerings.
Table 1: Growth in Mutual Funds and ETFs Sustainable Assets Under Management- 12/2017 – 6/2019
Sustainable investing, across varying asset classes such as equities and bonds, structured securities or private equity, to mention just a few covers a wide range of strategies whose definitions are still evolving.
That said, most practitioners agree that these encompass four notable approaches:
(1) Exclusionary strategies or the screening out of companies from investment portfolios for a variety of reasons, including ethical, religious, as well as other strongly-held beliefs, such as environmental concerns or involvement on the part of companies in specific business activities
such as the production or manufacturing of tobacco, firearms, and alcohol.
(2) Thematic and impact investing or investing to achieve a targeted social or environmental objective that is measurable; thematic investing, on the other hand, focuses on specific target areas such as the environment via low carbon investing, solar or wind.
(3) ESG integration or integrating environmental, social and governance (ESG) considerations as a proactive and integral component of the investment research and portfolio construction processes, including companies with social and environmental objectives that some investors believe can serve to minimize certain vulnerabilities, such as the risk of lawsuits from employees or toxic spills, and look for these goals as predictors of financial performance.
(4) Engagement and proxy voting. This includes shareholder and bondholder advocacy and engagement in an effort to influence corporate behavior as well as proxy voting practices.
These are not mutually exclusive strategies and investors can engage in one or more of these at the same time. Moreover, it’s not always entirely clear where one strategy begins and another ends, as these can also morph into one another.
While the above definitions attempt to broadly define sustainable strategies, there are potentially other investing approaches that aim to achieve a positive societal impact and financial returns that might not lend themselves to easy classification.
Falling into this category, for example, is investing in or financing microfinance institutions that seek to provide banking services to poor families and micro-entrepreneurs.
While screening or exclusionary strategies are easier to implement, more challenging to employ are ESG integration strategies and shareholder/bondholder engagement as well as proxy voting.
Whether fully assimilated into the fundamental investment process or addressed as a separate analytical track, special skills and backgrounds are required to properly assess relevant and material environmental, social and governance-related considerations across varying asset classes, security types, industries, and geographies.
Further, the increasing commitment by institutional investors to sustainable investing means that investment managers and related parties have to be in a position to articulate their sustainable investing strategies for the benefit of existing clients and to secure new mandates while continuously responding to the evolving nature of this area of investing.
At Harrison Stone, we can help recruit and hire to fit your sustainable investment staff needs and management strategies. In particular, we specialize in recruiting sustainable investment:
• Portfolio managers
• Research analysts
• Relationship managers
• Governance specialists
• Product developers
• Compliance and due diligence personnel
Call us to discuss your sustainable investment staff hiring needs.
