An advisee approached me in the recent market downturn and expressed his gripes about losing money. In the typical reactive forces of downturn psychology, my advisee had endless questions. His questions stemmed not only from distress but also of genuine confusion. Often is the case when you invest in something you grasp, you are left to the consequences of mystique and left pondering of what's to come. In his case, the lack of understanding of the investment itself was a bigger loss to him than the money he had forgone in the downturn. He followed by posing a very interesting comment, "I would be ok with losing money if the investment is in line with my code of ethics." While we all would like to invest along the lines of our code of ethics, what he really meant to convey was that he wants to invest concurrently with his morals and in an industry he understands and cares about. His desire to learn about markets that he understands is worth the cost to play the game (risk of taking a loss). My interests peaked and had me thinking: How can we as investors get involved in sustainable investing?
Socially good investments have always been streamlined to sustainable industries through public funding, government subsidies, institutional investment and large scale direct investment. The opportunities exist but the costs are high and operational risk extraordinary. Analysts are bullish in the sustainable investment space, predominantly in the European markets, and expect a massive inflow of assets into pooled fund for various causes in the next five years but the hope is to make these opportunities available to everyone. The hope is that the US will soon follow and in fact, many of the larger asset managers have taken steps to improve their sustainable business offerings. Morgan Stanley, reacting to the demands and influences of the whales and the youth, made a big push by raising 10 Billion dollars for sustainable growth projects. This still leaves much of the same hurdles for involvement for the retail investor and the millenials with whom I associate. In fact, Jackie VanderBrug, an analyst at U.S. Trust, noted that 79% of millennials would be willing to take higher risks with their portfolio if they knew it would drive positive social change. While most millenials don't have the funds to drive direct investment, they are desperate for ways to institute change with their money.
The B company global movement has been a recent recognition project of over 1,000 companies that meet certain sustainable business practices. While the guidelines are laid out in the legislation attached to the initiative, the mission is clear, drive companies to act more responsibly. Many of the B companies are private but their strokes in the right direction will soon influence the larger players in their industries. The mission has in fact resonated with larger corporations as shareholders and the investing community has become obsessed with sustainability metrics. Although not required by securities law, large corporations can voluntarily provide Environment/Social/Guidance (ESG) data to their shareholders (and prospective) to help display their "social responsibility" to investors. A few asset managers have even begun to offer mutual funds and exchange traded funds to retail investors looking to invest in these public companies that meet certain guidelines pertaining to financial stewardship, sustainable business practices and corporate governance (Sentinel mid-cap fund). As these funds grow in popularity amongst the investing community, the millenials will surely jump at the opportunity to get their feet wet and promote the companies that are "doing good."
Scaling the sustainable
Although the company is not public, one company that has caught my attention through its rapid growth has been sweetgreen. sweetgreen, a fast-casual salad chain that has fully bought in on the gastronomical demands of its consumers. They noticed how people were gravitating towards the locally sourced ingredients and supporting local farm economies and challenged the consumer to pay a higher cost for the value. The investment has paid off as the restaurant chain has grown rapidly since 2007 from one location in DC to twenty-seven locations in the tri-state area. By investing in their local agricultural communities they can help the businesses grow and even drive their production to more affordable levels through volume. I'm interested to see how they scale while maintaining the local integrity of their ingredients. As the allure of their offerings grow, as well as the midtown manhattan queues, we should hope to see similar minded companies following the trend.