End of Week Notes
Four ideas for building a sustainability-minded practice
Racial equity investing in recognition of Juneteenth and a lawsuit seeks to throw out Trump-era limits on shareholder democracy
Already at record levels, demand for sustainable investing is poised for tremendous growth in the next decade. The need to transition to a just, low-carbon economy is becoming more apparent and more urgent to more people by the day. And Millennials, who have consistently exhibited higher levels of interest than older generations, are beginning to hit their stride as investors and becoming investment decision-makers at institutions.
The field thus needs to be ready to accommodate a huge wave of investors, who will have preferences for a range of sustainable investment solutions. Some will want simpler “ESG-aware” portfolios, that seek to “do no harm” as they generate investment returns. Others will want portfolios that are more impact-oriented and more focused around sustainability themes. In other words, portfolios that generate competitive investment returns and “make a difference” by generating positive outcomes for people and planet.
That spells opportunity for advisors.
For advisors, the great opportunity is to build or transform your practice to prepare for the coming wave of investors who want their sustainability concerns reflected in their investments. In so doing, you can still enjoy, if not a first-mover advantage, then an early-mover advantage in most places.
Make sustainable investing a feature of your practice, not just a side capability. Rather than offering up traditional investments as your default and shifting to sustainable investments only for those clients who insist on it, do it the other way around.
Explain why your default is sustainable investing (… a more thorough approach to investing … protection from climate risk and other material ESG risks … competitive performance … influences companies to become more responsible and sustainable…) and I think you’ll find most clients will embrace the idea.
Why? Because most of them do have sustainability concerns but many may not have a clear idea of whether or how they can have those concerns reflected in their investments. They may not even quite know how to bring up the topic, which is why you shouldn’t hestitate to bring it up proactively with all your clients.
Understand that specific preferences of your sustainability-minded clients will vary. Don’t expect all your sustainability-minded clients to be highly committed climate/environmental/social activists. Don’t expect that they will all want to do a deep exploration of their values and why they want to invest this way. Some will, for sure. But others — I suspect most — will simply express a desire for sustainable investments, elicited by you proactively, and leave it to you to recommend a suitable portfolio.
Don’t be afraid to innovate! We are in the midst of a paradigm shift in investing, moving from a pure returns-based approach that doesn’t acknowledge the broader impact — or any agency in the impact — that investing has on society and the planet to one that does.
Here’s a post from 2018 that makes some of these points more thoroughly:
In recognition of Juneteenth, make an investment in racial equity
Apologies for reposting this link, but here are some ideas for how to apply a racial equity lens to your investments:
Trump-era limits on shareholder democracy hanging by a thread
On the policy front this week, the changes made by the SEC last year (with its then 3–2 Republican majority) to make it harder for smaller investors to file resolutions are now being challenged in court, as “arbitrary, capricious, and not in accordance with law” in a suit brought by the Interfaith Center on Corporate Responsibility (ICCR), As You Sow, and James McRitchie.
The suit seeks to have the changes to Rule 14a-8 overturned, which would leave the rule as it has existed for the past 50 years intact. That existing shareholder proposal process “has long served as a cost-effective way for shareholders to communicate their concerns to management,” said Josh Zinner, CEO of the Interfaith Center on Corporate Responsibility.
The rule as changed last year was based on insufficient economic analysis supporting the need for significant changes, says Zinner:
“It is instead based on the wholly unsupported assumption that shareholder proposals are simply a burden to companies with no benefits for companies or non-proponent investors when there is 50 years of evidence to the contrary.”
Lawsuit notwithstanding, the SEC intends to propose rule amendments to 14a-8 by next April, according to the Biden Administration’s unified regulatory agenda released last week. The lawsuit, if successful prior to that, would obviate the need for further SEC action.
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