The sustainable, responsible and impact (SRI) investment market saw a steady influx of new funds in 2021, making it one of the number one sustainable funds available to US investors. all time high by the end of the third quarter. It is bitter at best.
This growth is largely driven by investor demand. So, on the one hand, we are pleased to see an overall shift in people expecting more from our investments. But more funds also mean more opportunities for greenwashing, as it has proven much easier to pull the wool over the eyes of investors looking to align their investments with their values.
Perhaps even more worrying is the fact that we rarely see positive investing philosophy as a topic. By this, I mean that many fund managers are relying on primary indicators to investigate the “best bad apples” rather than starting with the simple question: “What do we want?”
If we are going to make progress, we must stop being “less bad” and start investing in the companies that are moving our economy and the planet.
Taking the lessons of 2021 into 2022
It is fairly clear that generic ESG indexes are taking advantage of the everyday investor. Sure, a fund labeled “sustainable” or “ESG” may look better than the alternative, but when you look under the hood, we’ve found that in most cases they still hold water compared to funds. Where there are positive aspects is being actively managed in the portfolio.
Last year also confirmed the absence of any kind of global framework for Mr. Europeans are closer to having some sort of understanding than the US, but the SEC has only started talking about regulating what is considered “sustainable”. And while I’m glad that global regulations are being discussed, it seems likely that regulation will continue to allow managers to create “less bad” wealth. It makes absolutely zero sense when we have the ability to invest positively today.
People are always afraid of change. But when we’re talking about SRI investing, change is only scary for investment firms and advisors who still look at tracking error against old benchmarks and risk management models, which were infamous in the early 2000s. Dot-coms were after the bust. Because we are still caught in the decades-old tracking error handcuffs, our transition to the next economic paradigm is proceeding very slowly. And as I’ve said countless times before – You can’t benchmark where we’re headed by looking in the rear view mirror.
Some SRI funds underperformed this year as several cutting edge companies took respite from the fast pace of 2020. That and the shift to overpriced stocks caused some portfolios to underperform traditional benchmarks. But it’s important to remember that, like innovation stocks, SRI is often early to the party as we see where the economy is going and which companies are taking us there. We agree with Kathy Wood of ARK Investments that Innovation companies are currently in a zone of deep value,
Anything in the short term that slows or hinders that further momentum is certainly going to add to the short-term volatility. But just as we can’t change the world overnight, we are in it for the long haul. when you compare us Green SEZ Sustainability Portfolio Since inception (December 21, 2012), it outperforms its benchmark by about 5% year over year.*
Next year, we will watch closely as the mid-term elections will surely affect the markets. If Democrats lose their modest margin of control, climate action will unfortunately cost it. Inflation will continue to impact daily life, as will potential new COVID variants and ongoing supply chain challenges.
COP26, The Climate Crisis, and Our Role in It All
Global leaders are finally prioritizing climate change as a worthy discussion topic as evidenced by COP26. But the fact that politicians and activists chatted together for two weeks, only to walk into the less than solid deal we’ve known for years… doesn’t change our fundamental investing philosophy at all. If anything, I believe the insurance industry may have the greatest responsibility of any industry because they are pricing risks. At the end of the day, we all have a role to play.
role of investment firms
Financial advisors have a fiduciary duty to act in the best interest of our clients. But as humans, it is also our duty to consider the impact that our choices make on the whole. Investors are searching for ways to align their investments with their values, and as advisors, we now have the tools to deliver. It is in the best interest of all of us to differentiate ourselves from traditional benchmarks and build a flexible portfolio that will lead us into the future.
Our Role as Citizens of Planet Earth
Simply put, everyone needs to do what they can. See where your money is invested. If you have the means to install solar panels in your home or buy an electric car, do so. If you don’t, do what you can – turn off your lights, optimize your thermostat. We all start somewhere, and our collective influence is far greater than the influence of any of us.
2022 Asha Meter
I tend to be a political cynic, but at the same time I am an optimist. When you look at the big picture and stop for some relativity, good things are happening all around us. Don’t get caught up in the subtleties and let the hope fade away. It’s certainly scary to think about the current climate crisis, so think about what we can do – build resilience and move away from fossil fuels as quickly as possible.
*Past performance is not indicative of future results