Weird no more. Five Reasons Why Sustainable Investing Became Mainstream.

This year, the number of “social investors” passed an important milestone:  A full one out of nine investment dollars under professional management now has a “responsible” mandate.  (That totals more than $3.7 trillion dollars.)

Chalk it up to social media tools like Facebook and Twitter, of course,  but just as the population increasingly shops with a conscience, they have begun to invest consciously, too.  From Bangladeshi factories to low wage Wal-Mart workers on public assistance, fast-spreading news means that investors are less likely to be passive bystanders.

We see at least five identifiable reasons why Sustainable and Responsible Investing (SRI) has gained this new level of acceptance among individual investors and institutions:

1.       SRI is about knowing what you own, and what you don’t.

Investors appear to have grown tired of wondering if they own shares that are inconsistent with their values.  “Do we own shares of Monsanto? or Halliburton, BP or  Wal-Mart…” isn’t a conversation you wish to have often with your board of directors, or with your spouse.  Social media posts make these issues harder to ignore, and the opaque nature of most funds made it hard to definitively know what you own.   In contrast, responsible investing is more akin to custom-made suit.   Investors would know that they didn’t own those shares, because an SRI portfolio was customized to their unique values.  Or the fund they selected was chosen because of its specific social characteristics.  In other words, these investors were empowered to demand transparency and personalization…

2.       "Headline risk" and management problems eventually go hand in hand.

The headlines seem to never stop…   And while one can’t predict exactly where the next corporate hiccup will occur, history has shown that to certain conditions make a problem more likely.  Investors have learned that insular Boards of Directors (e.g., insider-dominated News Corp.) have more  trouble minding the store than do more diverse boards.   Companies with poor safety records (BP), bad employment policies (Apple) and who choose lobbying over investment (Southern Co.)  will be among those more likely to have an issue that costs investors money.  In other words, sooner or later, the chickens come home to roost.  SRI is an investor attempt to sidestep some of these controversies.

3.       Low interest rates caused institutional investors to seek other sources of stable, long term growth.

It took ZERO percent rates for investors to realize that, from a return perspective, the old “balanced account” model left a bit to be desired.  So, big institutions began to explore alternative energy and real estate revitalization projects, community finance and social impact private equity.  This new balanced portfolio became a picture of what mattered to them, their mission and to the world. They were pleased to find financial returns with social impact, unleashing the growth in that new segment – now referred to as “impact investing”.  From necessity came an unusual set of opportunities.

4.       Individual investors found that investing for "quality of life" is good, and profitable.

From bonds that finance schools, to shares of companies who are the best employers and environmental stewards…  Investors saw a social impact from their marketable securities investments for the first time, and realized that they weren’t sacrificing returns to achieve this impact.  Additionally, community investing progressed substantially over the past decade, with an increasing variety of notes, deposit vehicles and funds available to retail investors who wished to funnel their capital to local or underserved segments.  Meanwhile transparency improved, as organizations such as GIIN (Global Impact Investing Network) helped investors to measure their impact alongside their financial performance.

5.      A new model emerged from both companies and investors

While its origin was centuries ago, responsible investing first gained broad acceptance in Europe, later to be embraced by pension plans in the USA.   Family offices and foundations began employing this style of investing around twenty years ago to better meet their missions and to have an impact beyond mere grantmaking and charity.   About the same time, businesses began to see things differently, too,  finding that energy efficiency is as much about greenbacks as it is about being green.  Investors had new approach, and companies began to move in their direction with better transparency of environmental, social and governance issues.  Dozens of reporting services such as CSRHub now track these metrics in a very public way, on a variety of websites.  These forces combined to advance the practice of SRI.

The evolution of responsible business continues…  Companies such as Patagonia, Seventh Generation and Ben & Jerry’s  showed the world that “doing business differently” could be profitable.  This concept gained steam with the emergence of the Certified B Corporation.  For those who have not heard of B Corps --  The “B” stands for “benefit”.  This is a corporate structure that explicitly considers all three legs of a  triple bottom line philosophy of “people, planet and profit”.

Earlier this year, Boardwalk Capital was proud to become a Certified B Corp.  And as sustainable investors, we wished to draw further attention to impact investments.   So, to facilitate this goal, we decided that 20 percent of our firm’s future profits should to go into a new Social Impact Charitable Foundation -- investing in some of those unique opportunities described above.  And we added a unique wrinkle to the plan.  Our clients and community representatives will have a say in which investments are selected.  Everyone can participate, regardless of the size of their investment portfolio.

So, we hope that you will join the conversation on Facebook as we embark on this unusual experiment.  We would welcome your thoughts and feedback.  You can watch from the sidelines or jump right in!