When I first started reporting on ethical or socially responsible investing in the mid-1980s, even raising the topic with most money managers was met with derision. You want to do good? Invest in companies with the highest potential return. Don’t mix doing good and making money.
The attitude was wrong then, and it’s rightly rejected now. More importantly, the financial money-management infrastructure is going through one of its occasional tectonic transformations. Socially responsible or sustainable money management — better known as the environmental, social and governance (ESG) — has gone mainstream and will only grow in influence.
The evidence is compelling that there is little return difference between investing for money and investing for money and values. Managements with admirable records on employee relations, environmental sustainability and strong corporate governance tend to do well over the long haul.
Still, the driving force behind the embrace of sustainability among financiers is global climate change. The signs that socially responsible investing is rapidly going mainstream have multiplied recently. For example, Bloomberg has launched its “Bloomberg Green,” an ambitious journalistic endeavor to become the leading guide to the science, politics, economics and finance of the green economy. BlackRock, the world’s largest fund manager with $7 trillion-plus in assets, has announced several sustainability initiatives.
“Our investment conviction is that sustainability- and climate-integrated portfolios can provide better risk-adjusted returns to investors,” writes Larry Fink, chief executive of BlackRock in his annual letters to CEOs. “And with the impact of sustainability on investment returns increasing, we believe that sustainable investing is the strongest foundation for client portfolios going forward.”
Of course, there will still be plenty of greenwash — misleading marketing campaigns and bold financier posturing with weak follow through. The necessary ESG data is lacking in many respects. Few companies offer employees socially responsible investing choices in their 401(k). The business has a long way to go in designing better low-fee ESG indexes. There will be genuine disagreements about ESG investment strategy. Nevertheless, the data, the knowledge and the investment choices will get better, and at an accelerating pace. That’s good news for investors and, hopefully, the planet.
Chris Farrell is senior economics contributor, “Marketplace”; commentator, Minnesota Public Radio.