Facets of portfolio management often parallel sports—and scuba diving is a good example.  Both involve taking calculated risks, demand passion and commitment, and require taking personal responsibility for a successful outcome.  Doing both of them well also requires a set of tools and knowing how to use them. Divers depend on an oxygen regulator and a gauge to measure the water’s depth to tell them how long they can stay submerged. They must stay calm when diving in deep water, rather than resurface too quickly—their lives can depend on it. 

Like divers, the best portfolio managers are passionate about their craft, demonstrate commitment, use the right tools to build a portfolio, and take responsibility for a successful outcome. They also remain calm when markets are roiling, rather than head for the sidelines in the midst of turbulence. 

I am a diver and a portfolio manager, and in my years of doing both, have come to realize how the sports analogy also extends to my particular specialty, impact investing—the intentional practice of aligning investments with personal values to seek both a social and financial return. I employ specific tools, such as risk measurement, to guard against market drawdowns, and use research to assess an asset manager’s track record to gauge the potential for long-term performance before including the portfolio in my asset mix. And just as the best portfolio managers develop a personal perspective that informs their investment decision-making process, I bring my own values and sensibilities as both a woman and a millennial to mine. 

Impact investing is one of the fastest-growing segments of the investable marketplace. Sustainable, responsible, and impact investing increased by 137% from $3.74 trillion in invested assets to $8.72 trillion in invested assets between 2012 and 2016, according to the Forum for Sustainable and Responsible Investment. And ESG investing, which measures the environmental, social, and governance issues that can have an impact on a company’s success, is particularly important to women and millennials—the latter being that special group that eschews their parents’ more traditional investment managers in favor of smartphone apps that connect them with digital advice providers. As the largest generation working today, according to a study published by Facebook in January 2016, millennials have redefined success along the lines of paying down debt and saving and investing for the future, often foregoing buying a home and the fancy stuff to furnish it.  They care about the world—its environment, its people, and its diversity. I know I do, and I’m not alone.  In fact, a Morgan Stanley study notes that 82% of high-net-worth millennials express interest in socially responsible, sustainable, and impact investing, compared with only 45% of the high-net-worth investor base overall. Millennials also want a financial advisor who shares those values, or at least understands why they are important to them.

Yet, a survey of advisors showed that the majority have little to no interest in sustainable investing. They may be missing an opportunity to reach a massive pool of potential investment assets: millennials alone stand to benefit from a $30 trillion wealth transfer in the next few years. Advisors who offer ESG investments can align portfolios with their clients’ values, offer a diverse set of solutions, generate competitive returns, and even reduce portfolio volatility. They also can broaden the more traditional analytical process by shining a spotlight on ESG investment criteria that seldom appear in a company’s financial statements.

ESG portfolio managers also can make a difference at the corporate level.  Don’t forget that we often vote proxy on behalf of shareholders, so we can bring pressure on companies to make positive changes. We also can help to form public policy by serving on committees that advise companies and institutions on ESG issues.  And it’s an added plus when we are privileged to work for investment firms that demonstrate passion for and commitment to the space, and whose industry peers recognize their success in doing so. 

ESG portfolios come in an array of solutions that serve a range of clients, from small accounts (with low minimums) to individual portfolios for high-net-worth clients, large pension funds, and endowments. Solutions can comprise exchange-traded funds (ETFs), separately managed accounts (SMAs), and mutual funds.

To sum it up, ESG deserves a rethink for these five reasons: 

1.  An opportunity to build deeper, more meaningful advisor-client relationships by understanding and incorporating social passions and priorities into their investment portfolios.

2.  Solutions exist to meet a variety of client sizes.

3.  Investors can align investments with social goals.

4.  Impact investments can make a difference at the corporate level.

5.  Impact investing offers competitive returns, transparency, and the potential for lower portfolio volatility.

 

 

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