Responsible Investing Is Now Mainstream. And It’s Easier Than Ever.

If you know anything about Signet, it’s probably that we’re Southern California’s premier Financial Planning and ESG/SRI Wealth Management firm.

So, it goes without saying that Socially Responsible Investing (SRI) and Environmental Social Governance (ESG) are two of the many investing approaches that we generally promote to our clients – within your goals, risk tolerances and individual preferences, of course.

While ESG and SRI are distinct and separate terms (you might think of SRI as more of an active management strategy, and ESG as more of an overarching philosophy), we occasionally talk about them together in an ‘umbrella’ fashion.

And, as luck would have it, good news is raining down on that proverbial parasol.

A Couple Things To Note:  

a.) News media and Wall Street financial markets are (finally) taking note of ESG as more than a phenomenon. In fact, they’re beginning to treat it as a true investment force – with some even making hyperbolic claims such as, “the second wave of ESG investing is here”. Put simply, our practice areas have gone mainstream.

b.) In related news, The Labor Department, as a proxy of the Biden administration, has made it easier to invest ESG funds in your 401k. Just recently, they proposed a new rule that would make it easier for employers to offer investments in workplace retirement accounts – such as 401(k)s and 403(b)s – that take ESG factors into account. (More on this later.)

So, as it would happen, the cognoscenti has seen the light. ESG is not only performing, but seeing larger inflows of money into its arena – and beginning to generate the sort of risk-adjusted returns our clients expect. Most of this is good news to those who are savvy and socially-conscious investors – and might be good news to you, too. Especially if you choose to work with Signet.

You don’t have to call us trendsetters just yet. But, it might benefit you to keep reading!

How ESG Met Its Mainstreadm Destiny

So, when did ESG finally break the threshold and become an attractive option among common investors?

For starters, analysis has shown that ESG and SRI trends are already pretty well-represented in the average American investor’s portfolio – even without a distinct focus on ESG or SRI. 

If you invest in index funds, or regularly dollar-cost-average among large-cap American companies, such as Fortune 500, your portfolio has likely been ‘decarbonized’. What does this mean? According to sources, oil and gas companies today make up just 2% of the U.S. equity benchmark – which is a mark that’s far off their 15% weighting in the index only 12 years ago. 

So, if these legacy megacorps aren’t being represented in your portfolio, there’s a good chance your index funds are already invested in trend-driven, environmentally-focused companies, such as green-energy startups, electric vehicle manufacturers or firms that place higher emphasis on human capital.

And just how prevalent is the sentiment that companies need to “do good”, in addition to doing a healthy business?

According to Allianz Life, 97% of Americans revealed that the social responsibility practices of companies – including taking a stance on important issues, making substantial investments in communities and treating employees well – factors into their investment decisions.

There’s also another factor at play: a lot of industrial and financial powerhouses know that if they put ‘green’ on something, it tends to sell well. Sure, we should all be wary of ‘greenwashing’ methods, but many market experts and economists are predicting that environmentally-forward disruptors will become leaders of tomorrow’s “winner-takes-most” markets.

Long answer short, yes, many of the funds which offer SRI or ESG products are hot right now. Currently, we tend to believe this self-fulfilling practicing actually tends to self-correct – and that markets will continue to reward the right actors appropriately.

In short, markets have sent messages to fund managers and investor relations execs: having socially-responsible practices is not just “nice to have”. It’s absolutely crucial if they want to attract the average American investor.

The Mechanism Which (Might) Make It Easy To Invest Consciously

When President Biden took office in January, many expected his cabinet to make large, if not sweeping, changes in economic and environmental policy, which would position the U.S. as a leader in the coming climate-change crisis.

Through the U.S. Labor Department, the Biden administration has proposed a rule that would make it easier  for ESG-focused funds to be featured in U.S. workers’ retirement savings plans – which is a stark reverse in policy from the Trump administration.

Because of the potential for lawsuits and regulatory scrutiny, ESG funds are typically not offered by employers. Plus, the Trump administration had previously required workplace retirement providers to make decisions based solely on “pecuniary” or economic factors rather than any other factors, such as environmental or preferential. This made many providers reticent to incorporate ESG into their evaluations.

All this is to say … all the ESG mania we began to reference above, we believe it’s only growing. If you need some help navigating this new world – aligning your diversified investment accounts with your values and goals, just ask a Signet advisor. We’d be glad to help.

How Signet Can Help:

What’s our main takeaway from this article? That trend-driven and hotly-contested ideas or strategies should always be talked over with a qualified investment professional – one who specializes in impact investing, as well as a wide range of investment specialties. To begin developing and implementing your impact investing strategy, contact us today.

At Signet, it’s our mission to provide investment resources and strategies to clients and financial institutions, helping them develop a greater knowledge and passion for sustainable, responsible and impact investments.

Let us help you find your mark with our experience.

Fine Print:

The return may be lower than if the adviser made decisions based solely on investment considerations. All investing involves risk, including loss of principal. No strategy assures success, or protects against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.)

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