Some of us hit the wall at different times in life. There is
the proverbial wall that one hits during a running race or long bike ride,
where you just run out of gas and can’t take another step or push the pedal one
more time. Some of us hit the wall when we can’t take doing the same activity
or job any longer. I hit the wall hard while working at JPMorgan. Going into
work at 277 Park Avenue every morning zapped the life out of me, and I knew I
had to make a change. A few weeks ago a good friend and client hit the wall in
terms of how he wants his money invested. He no longer wants to invest in
companies that negatively impact our environment and/or are involved with the manufacturing
of guns or ammunition. A very noble and impactful decision.
A few years ago it might have been a tall order to fill
unless you had a multimillion-dollar portfolio and could hire several money
managers to assemble it. According to the Forum for Sustainable Investing,
nearly $7 trillion dollars are being invested today in responsible and
sustainable investment strategies. The same study also states that nearly $1
out of every $6 is being invested in sustainable or socially responsible securities.
Today there are several hundred investment options focused on environmental,
social, and corporate governance (ESG) strategies.
The question for investors for many years had been “What do
I have to give up in terms of performance to invest in ESG strategies?” There
was a time when these investments’ performance lagged, but over the last few
years, according to a Calvert Investments study, ESG strategies/securities/investments/portfolios
have slightly outperformed the general global stock market. The stronger
performance over the past few years may be attributable to energy stocks
severely underperforming the general market because of falling oil prices, or
could it be attributable to better security selection? Your guess is as good as
mine. It is my opinion that today one does not have to sacrifice performance to
invest in socially responsible, or “impact,” securities that are more aligned
with his or her personal values.
While performance is certainly important and we want our
money to grow, investing in ESG strategies has other benefits. Your money can
have an impact on how companies act or invest. Your money can help bring about change!
Two weeks ago, for example, Norway’s $890 billion government pension fund elected
to divest itself from investments related to coal. The New
York Times said it was “the
biggest institution yet to join a growing international movement to abandon at
least some fossil fuel stocks.” The issue of climate change will in the
foreseeable future have a very big impact on companies that use or produce
large amounts of fossil fuels and potentially on their stocks as well.
If you don’t
think that investing in strategies that align with socially responsible values
can cause changes in policy, you need not look further than the divestment
efforts in the 1980s that eventually led to the end of apartheid in South
Africa. Institutions and endowments can have a strong say in the way
governments and businesses operate.
I hit the wall in
terms of my own investment style 15 years ago. I realized that trying to outsmart
the stock market was a loser’s game. If you have never read Burton Malkiel’s
book, A Random Walk Down Wall Street,
read it now—it is a great starting point to understand the fruitless exercise
of picking stocks and trying to beat the market on a consistent basis. Whatever
your values are, don’t be afraid to express them in terms of how you want your
money invested. After all, it is your money.
Investing
in the stock market involves gains and losses and may not be suitable for all
investors. The investment’s socially responsible focus may limit the investment
options available to the investment and may result in returns lower than those
from investments not subject to such investment considerations
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