This detailed article explains how and why, in the author's view, wealth managers can and must integrate socially responsible investing (SRI) into their approaches.
The following article comes fromMichael Landsberg who serves as the chief investment officerof Landsberg Bennett Private Wealth Management, a Florida-based private wealth management company. The editors are pleased to share these views; the usual disclaimers apply to views of guest writers. To respond, email tom.burroughes@wealthbriefing.com
Recent trends indicate a shift in investment approaches, aligning with societal changes. More investors prioritize options offering financial growth alongside societal or environmental benefits, spotlighting ethical investment strategies. This reflects a deeper investor awareness of wider effects. Ethical investing is vital in moving towards conscious capitalism, considering broader consequences.Wealth management firms integrate socially responsible investing (SRI) into services, vetting investments for environmental, social, and governance principles. They also promote responsible practices. This shift highlights that financial success can align with societal benefit.
Understanding Socially Responsible Investing
So, what exactly is socially responsible investing (SRI)?
Socially responsible investing (SRI) integrates personal ethics and societal concerns into investment decisions, favoring companies meeting strict social, environmental, and governance (ESG) standards. Unlike traditional investing focused solely on financial returns, SRI aims for positive societal impact through investment.
SRI can involve avoiding businesses harming society or the environment and supporting those making positive contributions. For instance, it might avoid fossil fuels or tobacco in favor of renewable energy or equitable healthcare access.
SRI signifies a significant shift in investor and financial professional mindsets, showing that considerations can complement financial success. With this trend, expect to see more innovative financial products and strategies balancing ethics and returns.
Importance of responsible investments
The significance of responsible investments extends beyond individual portfolios to influence broader economic, environmental, and social landscapes.
Here's why responsible investments hold considerable importance:
Promoting environmental sustainability
By directing funds towards companies that prioritize sustainability, investors can play a crucial role in combating climate change. This includes supporting businesses involved in renewable energy, sustainable agriculture, and pollution reduction.
Supporting social good
Socially responsible investing allows individuals and institutions to contribute to positive social outcomes. This might involve investing in companies that ensure fair labor practices, contribute to community development, or work to improve health and education outcomes.
Driving corporate governance
Ethical investments encourage better corporate governance practices, including transparency, accountability, and ethical business operations. Companies that adhere to strong governance standards tend to be more resilient and trustworthy, reducing investment risks associated with unethical behavior.
Aligning investments with values
For many investors, the ability to align their financial objectives with their personal values is of paramount importance. Responsible investing empowers individuals to make a positive impact while pursuing financial returns, providing a sense of fulfillment and purpose in their investment choices.
Mitigating risk and enhancing returns
Evidence suggests that companies focusing on ESG criteria often exhibit lower volatility and may provide competitive returns over the long term. These firms are typically well positioned to address emerging social and environmental risks, making them potentially more stable and profitable investments.
Principles of responsible investments
The landscape of investing is ever-evolving, and at the heart of this evolution are principles that guide responsible investments.
Letâs break down some key concepts:
Environmental, social, and governance factors
ESG factors are changing the game in investment evaluations. On the environmental side, it's about encouraging companies to lessen their impact on the planet. This could mean cutting down emissions, better waste management, or moving towards renewable energy.
Fiduciary duty and responsible investing
The idea of fiduciary duty is getting a fresh look. It's not just about chasing the optimal financial gains anymore but also about grasping how issues related to the environment, society, and company management can influence long-term results.
The United Nations Principles for Responsible Investment (UNPRI)
The UNPRI stands as a worldwide effort to grasp how sustainability concerns intersect with investing and assists its members in weaving these considerations into their investment strategies and ownership approaches.
Community Development Financial Institutions (CDFIs)
CDFIs are distinctive financial entities dedicated to uplifting communities that are economically disadvantaged. They offer essential resources such as loans, financial advice, and support for businesses to regions and groups often overlooked by mainstream financial institutions.
Impact bonds
Impact bonds stand out as an inventive way to back projects aimed at specific social or environmental targets. They're a novel type of financial tool where the financial returns are directly tied to achieving these goals.
How SRI is reshaping wealth management
Socially responsible investing (SRI) has grown beyond a niche interest; it's now a significant player transforming wealth management.
Let's explore SRI's impact on different facets of wealth management, from how clients are engaged to adherence to regulations.
Client demand and expectations
The rising client interest in SRI mirrors a shift in societal values. Nowadays, individuals are keen to match their investment choices with their ethical standards and aspirations for positive global contributions.
Differentiation and competitive advantage
In a competitive landscape, SRI provides a distinct advantage for wealth management firms. Showcasing a commitment to responsible investment practices helps firms distinguish themselves. This differentiation is rooted in a deep comprehension of the changing investment scene and a readiness to embrace these shifts.
Risk management and long-term performance
Factoring in ESG elements into investment scrutiny is gaining traction as a savvy risk management approach. Firms that perform well on ESG benchmarks tend to be more crisis-resistant, adept at dealing with regulatory shifts, and less prone to scandals that could dent their value.
Regulatory and fiduciary duties
Global regulatory environments are increasingly recognizing the significance of ESG considerations. In certain areas, investors are now expected to reveal their methods for incorporating ESG factors into their investment choices.
Impact investing and positive social change
Impact investing shifts focus from just steering clear of negative impacts to actively fostering positive change in society. This approach targets businesses, organizations, and funds aiming for social and environmental benefits, in addition to financial gains.
Integration of ESG factors into investment analysis
Bringing environmental, social, and governance (ESG) considerations into investment analysis is now fundamental in conscientious investing. This strategy extends beyond traditional financial indicators to evaluate a company's environmental impact, its interactions with workers, suppliers, customers, and its role in the community, along with how well it's managed.
Engagement with companies and shareholder advocacy
Engaging with businesses and advocating as shareholders are key parts of socially responsible investing (SRI), enabling investors to shape corporate conduct from the inside. By interacting directly with companies or using their voting rights during shareholder meetings, investors push for modifications in company operations concerning environmental care, social duty, and governance.
Education and awareness building
Education and raising awareness are crucial in promoting socially responsible investing (SRI). Many investors still need more understanding of the advantages and approaches of responsible investing.
Collaboration and partnerships
Working together and forming partnerships are vital in enhancing the effect of socially responsible investing (SRI). Through collective efforts, wealth managers, investors, businesses, and non-profit groups can exchange successful strategies, create inventive investment options, and push for policy adjustments that favor responsible investment practices.
Transparency and reporting
Transparency and accurate reporting are crucial for the trustworthiness and efficiency of Socially Responsible Investing (SRI). There's a growing call from investors for clear insights into the use and effects of their investments.
This requires wealth managers and the companies they invest in to offer comprehensive, precise, and impactful information on ESG factors and the results of these investments.
Wrapping up
It's evident that SRI is more than a fleeting phase. It marks a significant shift in how investments are chosen, driven by a deeper societal push towards ethical and sustainable practices.
By leaning into SRI, the wealth management sector is not just keeping pace with current trends but is actively sculpting the financial landscape of tomorrow. This embrace of responsible investing reflects the industry's agility and its role in spearheading significant transformations.Moving ahead, weaving SRI principles into everyday wealth management practices is set to redefine our notion of value, merging financial insight with a strong commitment to our collective wellbeing.
About the author
Michael Landsberg, CIMA®, CFP®, AIF®, serves as the Chief Investment Officer of Landsberg Bennett Private Wealth Management, a Florida-based private wealth management company. With a B Sfrom Babson College and an MBAfrom the University of Florida, he began his career at Morgan Stanley before managing investments in Florida. He believes in disciplined, rules-based investment strategies, and strives to provide personalized service to clients.
Disclaimer
Landsberg Bennett Private Wealth Management is a group comprised of investment professionals registered with Hightower Advisors, LLC, an SEC registered investment adviser. Some investment professionals may also be registered with Hightower Securities, LLC, member FINRA and SIPC. Advisory services are offered through Hightower Advisors, LLC. Securities are offered through Hightower Securities, LLC. All information referenced herein is from sources believed to be reliable. Landsberg Bennett Private Wealth Management and Hightower Advisors, LLC have not independently verified the accuracy of completeness of the information contained in this document.
Landsberg Bennett LLC and Hightower Advisors, LLC or any of its affiliates make no representations or warranties, express or implied, as to the accuracy or completeness of the information or for statements or errors or omissions, or results obtained from the use of this information. Landsberg Bennett Private Wealth Management and Hightower Advisors, LLC or any of its affiliates assume no liability for any action made or taken in reliance on or relating in any way to the information. This document and the materials contained herein were created for informational purposes only; the opinions expressed are solely those of the author(s), and do not represent those of Hightower Advisors, LLC or any of its affiliates. Landsberg Bennett Private Wealth Management and Hightower Advisors, LLC or any of its affiliates do not provide tax or legal advice. This material was not intended or written to be used or presented to any entity as tax or legal advice. Clients are urged to consult their tax and/or legal advisor for related questions.
Hightower Advisors, LLC is an SEC registered investment adviser. Securities are offered through Hightower Securities, LLC member FINRA and SIPC. Hightower Advisors, LLC or any of its affiliates do not provide tax or legal advice. This material is not intended or written to provide and should not be relied upon or used as a substitute for tax or legal advice. Information contained herein does not consider an individualâs or entityâs specific circ*mstances or applicable governing law, which may vary from jurisdiction to jurisdiction and be subject to change. Clients are urged to consult their tax or legal advisor for related questions.
