Surveys indicate retail investors are growing more conscious of the companies they invest in and how they operate. According to the Sustainable Reality report from the Morgan Stanley Institute for Sustainable Investing, more than $6.5 trillion is now held in sustainable or socially responsible investments, making up one out of every $6 under professional management. That’s a 45% increase from $1 out of every $9 in 2012.
As money managers respond to investors’ calls for more SRI options, they’re adding more products to meet the needs. Yet how funds define social responsibility can vary widely. Before making decisions strictly on names, investors should weigh the standards and the criteria the fund uses for the holdings it selects. Although the data on performance of such products and strategies is mixed, experts say that at the very least, socially responsible investments can keep near par with the S&P 500.
Meg Voorhes, director of research and operations for the Forum for Sustainable and Responsible Investment, says the shift toward more socially responsible investing is being driven by a “more interconnected world.” The Morgan Stanley report noted that over 70% of active individual investors describe themselves as interested in sustainable investing. Of those surveyed, 65% also believed sustainable investing would become more prevalent in the next five years.
The report found millennials and women lead the interest in sustainable investing. Nearly three-fourths of active individual investors said they believe companies with ESG practices can achieve higher profitability and are better long-term investments. Individual investors say that on average, 46% of their total portfolio should be invested sustainability.
“We’re seeing big interest from [younger investors],” Voorhes says. “There’s increasing awareness and it’s changing the way people view their investments.”