Seeking a New Type of Alpha

ESG, like blockchain, is a term currently saturating financial press. What originated as a niche investing interest has transitioned into mainstream practice – with dedicated award programs, conferences and even legislation.

While potential returns will surely remain the primary consideration when weighing investment options, social impact is becoming a prominent secondary concern. With this in mind, financial institutions are scrambling to anticipate and satisfy demand: creating investment products, developing ESG evaluation models, and even dedicating teams of personnel to mastering socially responsible investing.

In the short-term, focus is on demonstrating conscious effort to embrace ESG. In the long-term, however, authenticity will become paramount. It will be crucial for investment professionals to be able to demonstrate and communicate meaningful ESG strategies, and to establish a system for measuring the ultimate “impact” of impact investments.

Why Now?

Despite the recent uptick in attention, ESG is not as new an investing practice as it might seem. Its surge in popularity is a testament to shifting global attitudes and cultural priorities. Values-driven causes such as environmentalism, gender equality, veganism, diversity, corporate transparency and LGBT rights have risen in prominence and popularity – with impact felt from financial boardrooms to the highest reaches of government.

A driving factor behind this cultural shift is the influence of millennials – a generation which, beyond simply making money, is prioritizing having a positive impact on the world.

While millennials hardly account for the bulk of global assets (avocado toast doubtless to blame), a generational transfer of wealth will soon take place. Specifically, the “greatest wealth transfer in U.S. history will leave monetary power largely in the hands of millennials and women…women are estimated to hold two-thirds of all U.S. wealth by 2030.”¹ This shift will place these two demographics, both of which prioritize value-driven investing, at the helm of some serious assets.

Investment professionals worldwide are recognizing the opportunity this paradigm shift will provide – including breaking into the millennial demographic that has largely shied away from capital markets².

A New Alpha

The most pressing question facing financial services has always been how best to generate alpha. But as the definition of alpha evolves in response to shifting priorities, evaluation of performance will go beyond basis points, leading investors to ask a new set of questions.

Which products most closely align with my core values? How are investments evaluated to determine their ESG ranking? Is divestment the most effective approach for inspiring proactive reductions in carbon emissions? What are the long-term performance advantages of an ESG fund?

Investors are seeking a new type of alpha that encompasses both monetary gains and social impact. Investment professionals who perfect their approach today will secure an advantage with the investors of tomorrow.

Contact us today to learn more about effectively positioning your products for long-term success.

¹ Moszeter, B. (2016, April 8). Women And Millennials Leading The Charge In SRI. Retrieved from http://www.fa-mag.com/news/women-and-millennials-driving-the-bottom-line-of-triple-bottom-line-investing-26224.html

² Shell, A. (2017, April 26) Wall Street to Millennials: Don’t fear the stock market. Retrieved from: https://www.usatoday.com/story/money/markets/2017/04/26/millennials-and-investing/100559680/