How Trump Presidency Is Boosting Demand for Impact Investing, ESG Funds

Trump's executive orders and proposed budget cuts affecting environmental and social programs are increasing demand for impact and ESG investments

(Photo: AP) (Photo: AP)

Sustainable, responsible and impact investing currently captures $1 out of every $5 invested by asset managers in the U.S. or more than $8 trillion, according to the U.S. forum for Sustainable and Responsible Investment (US SIF), and that number is growing.

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Demand has been increasing steadily over the past few years but now appears to be accelerating as investors react to policies of the new regime in Washington.

“I’ve definitely seen an increase in the pace of impact investing,” says Jennifer Kenning, the CEO and co-founder of Align Impact, an advisory firm serving individuals, family offices, foundations and endowments and a resource for wealth managers and RIAs.

“In the past advisors could have deferred or delayed on requests about impact investing. Now they have to find a way to respond.”

Indeed, Tim Freundlich, president of ImpactAssets, which runs a donor-advised fund and works with asset owners, philanthropists and wealth advisors to advance social and environmental change, says investors and wealth advisors have “an increased sense of urgency in aligning and deploying high-impact capital to what they see as a fast opening gap from government policies.”

As a result of that urgency, he’s seeing more inflows into private debt and equity investments where “investors believe they can directly move the dial on impact through companies and funds.”

The greatest interest is in climate solutions and economic development, says Freundlich, but he’s also seeing increased focus on inclusivity and equitability.

Kenning says investors’ interest in environmental issues goes beyond investing in green projects and companies and avoiding fossil-fuel producers. “When an advisor says you don’t own Keystone pipeline,” investors want to know if they own banks that are loaning funds to TransCanada, which is building the pipeline.

She also sees interest in providing working capital and loans to fund affordable housing and health clinics for women and girls, whose funding will be cut under the Trump administration and Republican Congress.

“People see that the burden is shifting to the private sectors, that we cannot rely on government or corporations. This is a huge trend.”

More specifically, they see the cuts that President Donald Trump is making to budgets of federal agencies and nonprofits. He’s signed executive orders to dismantle President Barack Obama’s clean water rule and defund health providers overseas that discuss abortion, and he has proposed a federal budget that among other things would slash the budget of the Environmental Protection Agency by 31%, the budget of the National Institutes of Health by 20% and the budget of the Department of Housing and Urban Development agency by 13%.

(Related on ThinkAdvisor: Investing in ESG, SRI or Impact Funds? Do You Know the Difference?)

This increased interest in SRI investment is also reflected in the flow of money into ESG mutual funds and ETFs since the election in November. Though more narrowly defined than SRI, these funds focus on publicly traded companies that rate higher than other firms based on environmental, social and governance criteria.

“We’re seeing the political climate actually act as a catalyst for ESG and impact investing solutions,” said Amy O’Brien, head of responsible investment at TIAA Investments, an affiliate of Nuveen.

According to Morningstar, there was a net inflow of $3.7 billion into ESG-focused equity funds from December through February, which accounted for 96% of net inflows over the whole year ended Feb. 28.

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And there has been a constant flow of new ESG-related ETFs and mutual funds. Since the beginning of this year, State Street, Legg Mason, VanEck, BlackRock and Nuveen have all launched ESG ETFs and Natixis introduced the first ESG-focused target date ETFs for 401(k) plans.

In addition, broker-dealer Motif Investing, which focuses on “concept-driven trading platforms,” introduced Motif Impact Portfolios in March. This weighted group of stocks, rather than ETFs, was launched “because of Trump,” said CEO Hardeep Walia.

The firm’s survey, conducted through a third party found that 83% of investors care about personal values when making an investment decision but only 42% were investing accordingly. That gap was the reason the firm launched its Motif Impact Portfolios, said Walia.

There’s a “sense of angst and need to do something, to turn lemons into lemonade,” said Ron Cordes, who runs his own family’s donor-advised fund focused on helping women and girls in developing countries – “the most vulnerable population” – and is a co-founder of ImpactAssets and AssetMark, a large turnkey asset management platform.

His donor-advised fund is “doubling down” on its investments because of proposed cuts by Trump on foreign aid. Trump proposes to cut 28% from the State Department, as well as the U.S. Agency for International Development and other international programs by 28%.

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