Astronauts, ESG, and Growing AUM
In 2015, I was an Associate Producer on a feature length documentary film called Planetary, and during this time, I became friendly with a group of NASA astronauts that were also involved with the film. I soon learned that many astronauts, after having spent time in space orbiting around the earth, come back with a very profound shift in their views about the world. This is often called The Overview Effect.
Around the same time, I began attending several events about many of the social and environmental problems we are currently facing, and at the end of each event, someone would inevitably raise their hand and say, “Well, what can we do?” It quickly dawned on me that the migration of investor capital as a driver for corporate behavior could change the world—and that this was a major part of the answer.
Unfortunately, there are a lot of negative perceptions that remain about Socially Responsible Investing (SRI), because in the past, most financial advisors have believed, and in many cases rightfully so, that in order to invest in socially responsible ways, there needed to be a sacrifice on returns. What many advisors don’t yet know, is that largely due to the proliferation of computerized big data and artificial intelligence (AI), the landscape of Sustainable, Impact, and ESG (Environmental, Social, and Governance) Investing is changing dramatically, and the idea that we need to sacrifice returns in order to invest in these ways is no longer true. Since 2015, findings from more than 2,000 studies show that ESG outperformance opportunities exist in many areas of the market.
If advisors are looking for a reason to get involved with ESG, the increasing interest and demand on the client side vs. the lack of interest on the advisor side can certainly be a core driver. In 2017, the Morgan Stanley Signals Trend Report cited that 86% of millennials, 84% of women, and 67% of males, (75% overall) are interested in ESG Investing. In contrast, over 60% of advisors showed little or no interest, 30% were somewhat interested, while only 6% highly were highly interested.
At the same time, ESG Investing choices are continuing to grow at a rapid pace. In 1995, there were 55 funds that in some way looked at ESG metrics, while in 2016, there were 1,002 funds. I would actually argue that this growth has been somewhat slow compared to what we are going to see in the years to come, especially as more and more companies see the reporting that is coming from places like Morgan Stanley. Regardless of whether advisors are interested or not, products are increasingly going to be created to attract investors, especially as we see the 60 trillion dollar inter-generational transfer of wealth, from baby boomers on down, over the next 10-15 years.
From a business standpoint, we can see that although there is a proliferation of products coming to market and increasing client demand, the obstacle in helping to move assets into the Sustainable / ESG arena are the advisors. We are just not yet meeting the clients where they are ready to be met.
As advisors, we have a lot more power than we might think. We can work cooperatively with each other to build a network that can impact change. Our firm has created multiple resources to help advisors sort through the rapidly growing and ever-changing Sustainable, Impact, and ESG worlds. We are stewards of our clients’ wealth, and we don’t need to let Wall Street tell us which products we should be selling to our clients. Financial advisors control most of the mass affluent wealth in this country, and we can make a huge impact. I truly believe this, and it makes it more exciting to wake up and go to work each day.
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The information, analysis, and opinions expressed herein are for general and educational purposes only. Nothing contained in this piece is intended to constitute legal, tax, accounting, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. All opinions and views constitute our judgments as of the date of writing and are subject to change at any time without notice.