Donald Trump’s move into the White House could drive even more dollars into the already hot field of sustainable investing.
Wait, what? Trump has called climate change a hoax, said he’d like to pull out of the Paris Agreement on global warming and suggested rolling back the carbon-cutting Clean Power Plan. Isn’t his victory a sign that Americans don’t believe in climate change?
Regardless of what was said on the campaign trail, a growing number of investors do care about the environment, says Lisa Woll, chief executive of US SIF, a trade group whose membership includes mutual-fund companies, pension funds and others interested in sustainable investing. Those investors are putting more money into mutual funds and other money managers who take not only the environment but also social and corporate-governance issues into account when making investments, a so-called “ESG” approach.
More than $8.7 trillion is invested with managers who consider environmental, social and governance issues, according to a survey published this week by US SIF. That’s up 33 percent since 2014.
Woll recently talked about ESG investing, the election’s impact on the growing field and some of the risks inherent in investing in such a hot area. Answers have been edited for clarity and length.
Q: You really don’t think the election will mean a drop-off in sustainable investment?
A: No, I don’t, because the reality is no one’s going to be less concerned about climate. They’ll perhaps be more concerned, if the incoming administration actually does stand by its rhetoric around pulling out of Paris and rolling back the Clean Power Plan, which is one of the only things President Obama could get done on climate during his presidency because he couldn’t get anything through Congress.
Companies, and the people who invest in those companies, are increasingly concerned about climate. There are a lot of people involved in Earth Day and environmental issues. Many of those people on the street protesting now, part of that is about climate.
Q: But maybe that segment of the population is smaller than everyone thought. The segment of Clinton voters was certainly smaller than pollsters thought.
A: That might be. But I really do believe that the march to a lower-carbon economy has already started. I don’t think ESG investing is going to decrease, because most companies and investors still see a lot of risk around environmental issues.
Now, we’re getting put in a defensive crouch, which is OK. If you’re going to push back on the limited amount we’ve been able to do on climate, including the Paris Agreement, we’re going to push back on that pushback.
We’re going to see sustainable investors pushing companies on this.
Q: And people won’t see less of an incentive to invest in a sustainable fund given the change in the White House?
A: There’s very little the government has done that said, ‘If you invest in an ESG fund, we’re going to give you a tax deduction.’ There hasn’t been that sort of carrot provided to do this work. The carrot has been recognizing that it’s a better way to invest and a better way to manage risk. For religious investors, it’s a values-based approach. None of those go away.
Q: So, if not the election, what could trip up the growing demand for sustainable investing? Is it the higher costs?
A: Only sometimes are there higher costs. There are a lot of funds that are not higher cost. It depends on how much shareholder engagement they’re doing. In some cases, you want to pay for that extra level of scrutiny that goes on.
What could trip it up is a sense that what is happening at the national level is so catastrophic or un-enabling of progress forward that there’s a sense that investment won’t be enough. Fatalism could do it.
A rollback in the creation of new products could also do it, where you’re offering fewer funds. But I don’t see those things happening. I see increasing interest.
Q: US SIF counted more than 1,000 ESG mutual funds, ETFs and other kinds of funds in existence, up from only about 200 in 2001. Usually, when that many new products are chasing after customers, some of them turn out to be shoddy.
A: I think there are definitely money managers who have been drawn to the field because they see they can get clients. They love that it makes their clients stickier. They love being able to talk to an investor about what their values and their passions and hopes are for that money. I think there’s something about that that’s very exciting around people.
Because there’s been so much interest in this, you’re increasingly having money managers say that they do ESG investing, but they aren’t identifying what criteria they’re utilizing to do that.
The reality is you can only hold that position for so long, and then you’ve got to be able to deliver both performance and expectations around your evaluations of ESG issues.
Q: Do you think any funds are lying? Looking to cash in on a fad by calling themselves sustainable without actually considering companies’ environmental, social and governance impacts?
A: I wouldn’t say that. But If you look at what the defining characteristics are of being a sustainable or impact investor, it’s transparency, accountability and long-termism. It’s not to say that anyone is “greenwashing” or not doing it, but the market will probably require more of these providers over time, and that’s a good thing.