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ESG is Here to Stay

ESG is attracting growing interest, particularly among millennials and women. Assets in strategies using ESG factors grew a dramatic 33% between 2014 and 2016, although they still represent a relatively small share of total investment assets. As interest grows in ESG and impact investing, offerings have increased substantially. Many organizations now offer either individual ESG strategies or ESG overlays that can be applied to a client’s entire portfolio.

Robos jump into the fray

Robo advisors too are getting in on the act. Both Betterment and Wealthfront rolled out their approaches to responsible investing (we will save the SRI, ESG, impact investing debate for another day) this summer. Betterment offers a portfolio that uses a mix of iShares ETFs (currently the iShares MSCI KLD 400 Social Fund and the iShares MSCI USA ESG Select Fund) “to improve social responsibility scores in U.S. large cap assets” and plans to offer more funds in the future. Wealthfront’s plan is to give clients the option to invest directly in stocks that are socially responsible or exclude those that don’t meet their SRI criteria. They offer the ability to screen on four criteria: fossil fuels, deforestation, weapons and tobacco.

 All ESG, all the time

Smaller independent robos are springing up that are exclusively focused on ESG investing. Prophecy Impact Investments invites investors to Grow Your Wealth and Do Good at the Same Time. OpenInvest allows you to choose the values with which you want to align your investments and even gives you the opportunity to participate in voting on shareholder actions. Earthfolio offers portfolios focused on sustainability by only investing in mutual funds that “promote social and environmental progress.”

It’s a millennial world

It’s a natural fit for robos to offer an ESG option or to focus on ESG only, given that their primary target market is millennials. According to a 2017 study by Morgan Stanley’s Institute for Sustainable Investing, 86% of millennials say they are interested in socially responsible investing. They feel even more strongly regarding their retirement assets, with 90% expressing interest in sustainable investments as part of their 401(k)s.

Leaving aside concerns about whether investing responsibly and sustainably requires a financial sacrifice, it appears that interest in ESG investing will only continue to grow among individual and institutional investors and wealth and asset management firms would do well to think strategically about how to provide access for their clients.