Trends in social investing were the focus of a lively panel discussion at this year’s 2019 Early Stage Symposium sponsored by the Wisconsin Technology Council. Michael Best was a proud Platinum Sponsor of this year’s event.
The framing question for this panel was – can investors “do well” by seeking to invest in companies that are “doing good?” The clear answer from our panelists – Yes! – backed up what national trend data have shown for some time. Here are just a few of the proof points.
The Morgan Stanley Institute for Sustainable Investing released a study earlier this year that analyzed the overall performance of sustainable funds as compared to traditional funds. The study looked at funds that prioritize companies’ performance across a range of environmental, social and governance metrics – identified by the shorthand “ESG.” The punchline: funds tracking ESG metrics are growing, and are doing every bit as well as traditional funds.
- Morgan Stanley identified 144% growth in the number of ESG funds from 2004 to 2018.
- Sustainable or socially responsible funds performed as well as, or better than, traditional funds over this same time period.
- These funds tolerated economic downturns better than traditional funds. Notably, during the market turbulence of 2008, 2009, 2015 and 2018, sustainable funds lost significantly less value than did traditional funds.
In a similar vein, the Forum for Sustainable and Responsible Investment (US SIF) has tabulated a three-fold increase in US assets under management using socially responsible strategies between 2012 and 2018, including a 38% increase in just two years from 2016 to 2018. By US SIF’s count, socially responsible strategies are now applied to invest one of every four dollars of total US assets under professional management.
These highlights – there is growing demand from investors for socially responsible investment opportunities; there is no tradeoff in financial performance; and in fact there may be some advantages – were born out in the comments of our four panelists. We also had a great discussion of the advantages for companies that focus on positive environmental, social and governance practices above and beyond attracting investment. Panelists confirmed that companies that can attract socially responsible investment have a competitive edge with customers and employees.
As Amanda DoAmaral, founder of advanced placement exam resource Fiveable, said, “I’m not just building a company, I’m building a movement.” Aaron Olson, co-founder of NovoMoto, echoed this ethic, emphasizing his company’s commitment to improving the lives of their customers by expanding access to environmentally sustainable electricity.
One of the challenges to matching socially responsible investors with companies like Fiveable and NovoMoto is the breadth and diversity of investor priorities and measures of positive social impact. Investment manager Cindy Bohlen with Riverwater Partners, and social accelerator advisor Kathy Hoyt with Woronora Advisors, emphasized the need for patience and open communication between investors and companies – whether startup or established – as they work to identify metrics that will both meet investors’ ESG or socially responsible goals and be meaningful and feasible for the company to track and report. These open conversations about what to measure can also help investors see beneath the risk that the rush to promote ESG criteria may lead to “green-washing” or “purpose-washing” rather than measurement of real change in corporate practices.
Our astute audience pushed on the need for public policymaking that is aligned with the priorities of socially responsible investors, and dug into the details of how entrepreneurs DoAmaral and Olson were able to attract their first financial supporters.
It’s not time to declare victory for social investing just yet. No doubt the debate over whose interests should be paramount in investors’ eyes – customers? employees? shareholders? – will continue. There are still $3 invested without an ESG lens for every $1 that is. That said, our panelists left no doubt that investments in companies with shared value missions can deliver real financial returns in ways that create tangible benefits for customers, employees, owners and shareholders, community partners, and the environment.