Environmentally-conscious investing is still a minuscule part of the overall financial services universe, but it’s a segment that edges closer and closer to the mainstream every year. Sustainability and other green issues have become a much bigger part of the socially responsible investment movement (SRI) in the last few years, particularly as a greater emphasis has been placed on the “E” in ESG (environmental, social, and governance) factors by investors.
A new white paper, “Responsible Investing: A Paradigm Shift,” by Robeco, the Rotterdam-based financial services company and Booz & Company, the London-based global consulting firm, predicts that by 2015, the responsible investing (RI) market, encompassing both SRI and SI (sustainable investing), will account for 15% to 20% of global assets under management ($26.5 trillion). (You can download a copy of the study here.)
To date the biggest players in this investing arena have been large institutions and pension funds, but the study expects more individual investors to be attracted by concerns about climate change, alternative energy, and clean water. The authors of the paper pointed to increased social awareness among investors, higher prices for energy and raw materials, changing legislation, technological innovation, and “the established track record for RI performance,” as among the driving factors behind the expected mainstreaming of this investment philosophy.
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It seems that when investors are asked if they would like their investments to reflect their personal beliefs, the answer is usually yes, but when advisors are asked if they offer their clients that option, more often than not, the reply is, “if the client asks for it.” Beyond well-established fund families such as Calvert or Pax World, many advisors aren’t sure what else they can offer.
“As I looked at the marketplace and did a little research around SRI investing, I realized that there was really no central hub for advisors to access investment product, insight, or strategy,” says Bill Crager, president of Envestnet, the Chicago-based provider of wealth management solutions. At least there wasn’t until last year, when his firm launched its sustainability platform.
The idea of sustainable investing had long appealed to Crager and after long talks with several advisors he came to the conclusion that it might provide an excellent opportunity to enhance Envestnet’s offering to advisors and “at the end of the day, to do some good.”
He knew going in that the initial usage on the platform would not be as high as other Envestnet offerings. So far it’s attracted only a few hundred of the roughly 13,000 advisors who use the firm’s platforms, but the level of assets invested through the platform is about $400 million. “That’s the old chicken or the egg question,” he says with a slight laugh. “If you build it, will they come? I think because we’ve streamlined and created the accessibility, we’ve seen advisors [embrace the offering] who wouldn’t have thought about this. You go through the normal process of delivering a UMA solution to an investor. At the end of that process there’ll be a question. ‘Does your client want to manage this portfolio with any restrictions?’ It’s a click-click-click and you’re able to implement that portfolio. I think that accessibility broadens the number of advisors who will introduce the idea to their clients.”
Crager says he’s also spoken with a number of advisors who have been attracted to the platform because it gives them a point of difference when compared to other advisors in their markets.
Advisors who have clients who subscribe to an SRI philosophy can use the platform to build customized portfolios based on whether the individual has a more environmental or social perspective. Crager says his firm worked with KLD Research and Analytics to develop some advanced screening tools that make the effort work.