Securing the greatest possible return on an investment is no longer the sole priority for many investors, particularly millennials, who are instead seeking out sustainable, socially responsible ways to impact the world with their investment dollars.
While this form of environmental, social and governance (ESG) investing was previously seen as putting one’s ideals above profits, that’s not even necessarily the case anymore says AMG Realty Group founder and managing partner Adam Glickman, who is himself an active investor and involved with numerous charitable endeavors.
Some of the biggest ESG mutual funds in the world, including the Putnam Sustainable Leaders Fund, the Brown Advisory Sustainable Growth Fund, and the Ave Maria Growth Fund, all delivered impressive total returns of greater than 30% in 2019 according to data compiled by Bloomberg.
Those and other ESG funds are growing at a breakneck pace given their promising returns coupled with the important work they are supporting. The collective assets of the 75 ESG funds analyzed by Bloomberg jumped by 34% last year to just over $100 billion.
Adam Glickman believes there are several reasons why ESG investments are performing better now than they have historically. One of the most prominent is the growing regulatory infrastructure in place that rewards sustainable companies and penalizes those that aren’t. Furthermore, sustainable products and services now command a premium price on the market due to increasing awareness and demand.
Since ESG investing also factors in how companies treat their employees, those companies likely have an additional competitive advantage when it comes to attracting the most promising employees, further boosting productivity and innovation. Most importantly, Adam expects these trends to continue.
How to Invest in Sustainable Companies
So how does one go about investing in ESG companies? ESG or SRI (sustainable responsible investing) funds or ETFs are a great place to start, as they pool together dozens, hundreds, or even thousands of companies into one investment. This provides investors with the means to not only support many worthy companies at once, but to construct a more diversified and resilient portfolio in the process.
With so many ESG funds now storming the market, Adam Glickman cautions that not all are created equal and that some due diligence will be required to understand how individual funds select stocks. He says to pay particular attention to what positive or negative screening criteria are used, if any, which could be the difference between a fund including only those companies with the lowest carbon footprints in their industry as opposed to any company undertaking moderate carbon initiatives.
Alternatively, if an investor would rather focus on just a few companies but isn’t quite sure how to determine which companies are sustainable, AMG Realty’s Adam Glickman recommends using those same funds and ETFs as an invaluable research resource, as the specifics of their holdings can be looked up online.
In the case of the Brown Advisory Sustainable Growth Fund, which can be inspected on the company’s website, its major holdings include Microsoft, American Tower and Danaher, the latter of which operates a water safety and purification division, a prime example of ESG initiatives that are definitely worth supporting.