Sustainable investing now comprises $30 trillion annually in global assets.
According to Otgo Erhemjamts, Finance professor and associate provost for Strategic Initiatives, younger investors are particularly keen on creating portfolios with a higher purpose. Here are her insights on a “modern” practice that dates back some 3,500 years.
It’s Rooted in Religion.
Faith-based communities were the first to integrate ethics and finance, beginning with the Jewish concept of tzedek (justice) around 1500 BC. Later, Sharia law forbade Muslims from collecting interest and investing in taboo commodities like alcohol and pork products. In the 1650s, Quakers prohibited profits from slavery, while 18th-century Methodists condemned “sin stocks” such as tobacco, firearms and gambling.
Orange Inspired the New Green.
Opposition to the Vietnam War intensified around the use of Agent Orange, a toxic herbicide that devastated the environment and caused lasting health problems, including cancers and birth defects. In response, two Methodist ministers created the world’s first socially responsible mutual fund. Introduced in 1971, the Pax World Fund allowed investors to avoid Agent Orange-complicit companies.
Women are Power Players.
Until recently, male fund managers scoffed at the field’s money-making potential. “They viewed it as an important but thankless task,” explains the professor, “so they handed it off to women.” As a result, it’s one of the rare areas of finance where women are well represented: While just 16% of chartered financial analysts are female, recruitment firm Acre Resources reports that 44% of the sustainable investing roles it filled over the past five years went to women.
Sustainability is Profitable.
“Early investors were willing to sacrifice larger returns to avoid sin stocks,” saysErhemjamts. Today, the field is evolving into investing in best-in-class companies or creating impact. Multiple studies confirm that sustainable funds are as profitable as conventional ones. Moreover, reports Morningstar, 72% of all sustainable equity funds ranked in the top half of their respective investment categories in the first six months of 2020.
There’s an Option for Every Cause.
From a single choice in 1971, environmentally and socially conscious funds have grown to nearly 400 today. Climate change and human rights are among the top-ranked concerns, but as Erhemjamts notes: “Whatever issue is important to you — from affordable health care and sustainable agriculture to LGBTQ+ rights and renewable energy — you’ll find an investment tailored to that.”
