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When discussing how to invest like a millennial, I mentioned that social responsibility is a key factor when making investment decisions. A study from Morgan Stanley’s Institute for Sustainable Investing supports this claim, finding that millennials are two times more likely to invest in companies that target impact outcomes. What’s more, 76 percent of women surveyed prioritize economic, social and governance factors in their investment decisions. But this phenomenon isn’t limited to any one generation or gender. I spoke with Deborah Winshel, Global Head of BlackRock Impact, to learn more about what she is seeing in this space and why sustainable investing is here to stay.
First things first. What is sustainable investing?
At BlackRock, we define “sustainable investing” by three key segments: exclusionary screens, ESG considerations and impact investing.
1. Exclusionary screens
Exclusionary screens remove specific products or industries that don’t align with an investor’s values. For example, you may decide you don’t want to invest in tobacco or fossil fuels. This approach was really the first iteration of making investment decisions based on factors other than just financial performance, applying constraints based on personal beliefs.
2. ESG considerations
ESG considerations use environmental, social and governance factors to identify not just what a company does but how they do it. Companies report on how they pursue environmental responsibility, how they support employee diversity, how many volunteer hours they devote to the community every year, etc. We then use these standards to build a portfolio.
3. Impact investing
Impact investing targets a very clear social or environmental outcome that is measurable and transparent. Instead of just refraining from investing in something that doesn’t align with your beliefs, you’re focusing on companies that are operating responsibly and having a positive impact on the world.
How much of an increase have you seen in sustainable investment assets globally?
We have seen sustainable assets increase by 61 percent in the last few years and the growth continues globally. About two thirds of the sustainable investment market is in Europe and 30 percent in the U.S., where we are seeing faster growth. We know that exclusionary screening is most prevalent in Europe, whereas the ESG approach is most common in the U.S.. In my opinion, a key reason why growth isn’t even greater is because there hasn’t been a wide range of investment opportunities to meet the demand until very recently.
If you could pinpoint the source of this increased demand, what would it be?
No matter how old you are or which generation you identify with, there is an increasingly undeniable overlap between our personal lives, our financial lives and the world at large. Whether it’s carrying reusable bags with you to the grocery store or hearing the Pope talk about climate change or reading about President Obama’s environmental initiatives, it’s clear that what we do today has long term impact. There’s now an opportunity for people to direct their investment capital in a way that is meaningful to them beyond just generating a financial return. This opportunity is resonating with individual investors who are looking to do more with their money. At BlackRock, first and foremost, our job is to protect and grow our clients’ assets. In doing so, our unique investment platform, insights and technology enable us to identify and track attractive impact opportunities. Our objective with any impact investment is to deliver two outcomes: (1) defined and measurable impact outcome alongside (2) a targeted financial return.
How can an investor be certain that they are making a difference and having a positive impact overall?
Transparency is very important. With the reporting capabilities that are being made more readily available through technology, it is becoming easier to effectively measure the repercussions of where we as investors direct our money. For example, my colleagues and I are laser focused not on what makes a “good” company or a “bad” company but which companies have a carbon footprint that is better than the index, or companies that are achieving environmental outcomes through green technology and innovation. By making this information readily available to the investor, we are helping them to decide for themselves which investments will have the impact that they are hoping to achieve.
What are your questions for Deborah about impact investing? Ask them below.