The rise of socially responsible investing
Jan 16, 2019 10:44AM
By Kathleen Maris
By Brady Quirk-Garvan
In the mid-1980s as the debate over apartheid in South Africa raged, some investors picked up on an old idea called divestment. Asset managers, individual investors, and even countries stated that until apartheid ended, they wouldn’t invest their money in South Africa. This along with political and social pressure helped to end the racist apartheid regime in the African nation.
When Archbishop Desmond Tutu accepted the Nobel Peace Prize, he credited the divestment movement: “In South Africa, we could not have achieved our freedom and just peace without the help of people around the world, who through the use of non-violent means, such as boycotts and divestment, encouraged their governments and other corporate actors to reverse decades-long support for the apartheid regime.”
This really was the birth of the modern socially responsible and impact investing space. Individuals and institutions understood that their investment decisions could have an impact on the world as well as the value of the their account.
Fast forward to 2018 and the socially responsible investing movement has grown tremendously. According to US SIF: The Forum for Sustainable and Responsible Investment, the trade association for socially responsible investing, $12 trillion is now invested using some level of a social screen. That means that $1 out of every $4 that is professionally managed in the United States has some social, environmental, or governance screen that is also being used besides financial metrics to determine what investments make sense.
As you can imagine, these screens and filters vary wildly. Some are fairly benign, such as saying you will only invest in companies where the CEO and chairman of the board are different people. This has been proven to cut back on potential corruption and has been shown to lead to higher financial performance as well.
Others choose to take a more proactive approach to socially responsible investing. Individuals and institutions across the United States are opting to stop investing in fossil fuel companies. Others want to invest in companies that have diversity on their board of directors. Diversity in management and on the board of directors isn’t just something that calls to these individuals on a social level; it has also been proven to enhance financial performance.
The range of issues and subject matter that can be measured has also increased dramatically. With the explosion of information available to investors, you can now look at a company not just through a financial lens but on a whole host of issues, from gun manufacturing to paternity leave, environmental fines, discriminatory lending practices, and more.
The demand for these services continues to grow every week. Now major institutional investors and brokers who once shunned the idea of incorporating values into investing are getting on board. They see the growing market share of socially responsible investing, and those who are more proactive see the thousands of millenials who are about to inherit trillions of dollars of wealth and many of them aren’t willing to stick with their parents’ broker unless they are willing to incorporate these values.
In an age of increasingly lax oversight from the government, and at a time when national corporate interests are willing to cut corners to appease shareholders, there is a growing contingent of people who want to invest in affordable housing, in companies who don’t just run environmentally friendly ads but actually practice those principles, and who want to make sure that the management of companies reflects the diversity of the country.
While this financial approach isn’t for everyone, with $12 trillion under management in 2018 and new funds being launched every week, it is clear that this is not a passing fad but a serious movement that is gaining traction and will have an impact on the markets and corporate America for years to come.
Brady Quirk-Garvan is a co-owner of Money With A Mission, a socially responsible investment and financial planning firm. Money With A Mission has offices in Charleston and Greenville, S.C., and Asheville, N.C. He lives in Charleston with his wife and daughter.