What Happens When a Banking SuperPower CoSigns an Eco Trend
Even if you consider yourself an environmentally conscious person, there is a trend that may have escaped your notice.
Socially responsible investing, or SRI, is an investment strategy which rewards thriving companies that include positive social and environmental change in their mission. Conversely, it punishes companies that invest in fossil fuels, oil, Big Pharma, alcohol, tobacco, weaponry, military, or Big Food.
It’s a bit like the Hippocratic Oath, really — by choosing to invest in an ethical way, your guiding principle is to do no harm.
And it’s now a $12 trillion industry.
That seems like a lot — and for a trend that’s gotten as much pushback as SRI has, it is. But the reality is, Wall Street and the big financial pundits have pretty much been laughing about SRIs for years. That big number actually makes up around 26% of all investments under professional management. In fact, socially responsible investing has grown 38% since 2016, according to the United States Forum for Sustainable and Responsible Investment.
The myth is that SRIs:
- Won’t make the same returns for shareholders that any of the above-mentioned unethical established industries will.
- Are a flimsy trend built on a weak foundation that won’t stand the test of time.
- Or interfere in free market practices by favoring companies focused on morality more than companies focused on solutions.
And slowly but surely, those myths are being debunked.
You see, the implication that SRIs can’t pull the same money that industry investments can assumes that SRIs aren’t run by business savvy men in suits, but hopeful hippies with electric cars.
And the fact that SRIs are growing at a pace of 19% a year shows that the trend isn’t going anywhere.
And the very notion of a free market practice is that companies can choose to focus on morality without expecting negative interference from its business partners.
What the movement really needs is a powerful clap on the back from a major industry money manager.
Which it just received…
Goldman Sachs Advocates for SRIs Going Mainstream
Goldman Sachs CEO David Solomon admits that green bonds and other sustainable investments are still “relatively niche,” even though over the last two years, client interest in climate exposure has “amped up materially.”
He estimated that this kind of investment represents just 1% of capital markets.
Right after the Intergovernmental Panel on Climate Change released a game-changing report on the deplorable state of the oceans and the melting ice caps, the Bloomberg Global Business Forum commenced in New York.
In a shocking turn of events, the global banking powers present felt they were more united in climate change concern than policy makers.
Citigroup Inc. CEO Mike Corbat went as far as to suggest that policy makers incentivize green investments, using a “carrot” approach rather than a “stick.” Using the “stick” approach, such as administering fines for ecologically harmful business practices, doesn’t deter the heads of Big Business. They simply “factor that in.”
Solomon agrees, admitting that in order to focus on green investments, one has to get creative, since there is no existing infrastructure to guide clients the way there is for industry leaders.
He spoke on behalf of Goldman Sachs at the conference, citing bonds with reduced borrowing rates if they meet sustainability metrics and an equity fund that makes an effort to lessen its carbon footprint with the companies it represents.
Climate Fighters Continue to Step Into the Ring
The support of big bank CEOs is enormous, and it speaks to a larger shift in public consciousness. For example, even the NASDAQ, one of the largest stock exchanges in the world, has a component of their website exclusively dedicated to green equity indexes.
And when there is pushback — like when a Securities and Exchange Commission bylaw seeks to limit shareholder proposals especially regarding climate and environmental concerns — the financial world is ready to respond.
In September, a group of 129 investors and investor organizations, combined assets equalling $525 billion, signed a petition to fight that change. “Shareholder proposals have helped companies address issues before they became significant problems,” Lisa Woll, CEO of US SIF stated. She went on to say that “the market mechanism tools available to shareholders [exist] to ensure that companies are transparent and accountable.”
The little trend that could is chugging along much faster than the policy makers in Washington. But since money talks…
Socially responsible investing may well be the answer in moving the needle on Capitol Hill regarding climate and environmental policy.