This content is from: Corner Office

How Responsible Investing Can Appeal to Rebels

  • Meredith Jones

I have, at various times in my life, been described as “ornery.” Unfortunately for those in my family, cantankerousness is a trait I developed early and deployed often. My late grandfather referred to my protesting as “grousing.”

My mother bore the brunt of my rebellious ways for most of my childhood. The typical day would start with her coming to wake me for school around 6:30 am. I am not, nor have I ever been, a morning person, so being roused at that ungodly hour was pretty painful and often unsuccessful. If my bedroom lights didn’t go on within about 10 minutes, my mom would come in again. And again. And again.

And each morning, in a perverse need to buck authority, I would lay in bed, wide-awake, dreading the moment my mom poked her head back into my room, yet still refusing to rise. The more times she came in, the longer I would wait to get up. I would court detention, bad hair and the loss of Krispy Kreme donuts on the way to school, all just to thwart my mom. Eventually, however, I would huff out of bed, dress in whatever Molly Ringwald-inspired ensemble I planned to wear to school that day and spend another day enjoying a top-notch education at Tuscaloosa County High School, aka “Redneck Tech.”

Luckily, my irascibility died down considerably after I completed puberty. I’m not sure I would have survived in my household much longer if it hadn’t. And let’s be clear, there’s not a jury alive that would have convicted my mom. I do still hate mornings and, on occasion, tilt at an authoritative windmill, but — and this may be hard to believe — I’ve actually mellowed with age.

So imagine my delight when I recently discovered a whole group of people who share my contrarian bent. No, it’s not teenagers at the ice skating rink. It’s investors.

It seems the current administration has boiled down its environmental, social, and governance agenda to a Regina George meme: “Stop trying to make ESG happen! It’s not going to happen.” Rather than being cowed into submission by this Mean Girls approach, investors have opted to put their money where their values are. Responsible investing funds, which invest based on values rather than strictly on valuations, attracted more cash in the first four months of 2017 than they did in all of 2015. And it’s a trend that is unlikely to abate any time soon.

One reason for the growth in responsible investing is changing demographics. Where only 36 percent of baby boomers say they use investment decisions to express their social, environmental, or political values, a survey by U.S. Trust found 67 percent of millennials do. For wealthy millennials — no, they’re not all living in their parents basement — a recent survey by OppenheimerFunds and Campden Research found 72 percent think social value creation is very important to their investment decisions. Even three quarters of Generation X, those cynics raised on a steady diet of ennui and Reality Bites, stated they would rather invest in companies that have a positive impact than ones that are negative.

Furthermore, in almost every survey I’ve seen, women also seem to be pretty keenly interested in responsible investing. A recent Natixis survey found 81 percent of women polled think it is important to invest in ethically run companies. This is critical for companies and the investment industry to note, as 45 percent of U.S. millionaires are now women and the number of wealthy women is growing nearly twice as fast as the number of wealthy men. By some estimates, women will control two thirds of the country’s wealth by 2030.

Consequently, the popularity of responsible investing strategies seems destined to intensify at a time when research has started to show, perhaps contrary to popular belief, that responsible investors don’t automatically take a performance hit for their troubles. A recent Bank of America Merrill Lynch Global Research study showed that investors who consider ESG factors are “less likely to buy shares in companies with volatile stocks [and] less likely to buy into companies headed toward bankruptcies,” according to a New York Times report. A separate Goldman Sachs study found that companies with higher levels of female employees have generated average annual alpha of 3.3 percent, and companies with low carbon emissions created 3.1 percent alpha in most non-manufacturing sectors.

Obviously, there is a lot of research that remains to be done on the various subsectors of responsible investing: ESG, impact investing, socially responsible investing, and mission related investing. One could also argue that the available data is just now getting to a point of statistical significance, and that there is an overall lack of consensus about all things “responsible investing,” from terminology to performance to fees to shared values. But for now it would seem investors have uncovered a wonderful opportunity that definitely eluded me in my youth: the ability to be a bit contrary and make some money at the same time. And no one has to nag them into doing it.

Meredith Jones researches and blogs about investing and is the author of Women of The Street: Why Female Money Managers Generate Higher Returns (and How You Can Too).