Industry leaders talked about how to align clients' financial and impact goals, as well as whether SRI has become mainstream during the first session of the Family Wealth Report Summit last month.

Assets managed with sustainable, responsible and impact investing strategies now account for over one in six dollars under professional management, according to the US SIF Foundation’s most recent survey.

With the amount of SRI assets having ballooned from $3.74 trillion at the start of 2012 to $6.57 trillion in 2014, the trend has certainly not gone unnoticed in the wealth management industry.

Eurosif defines sustainable and responsible investing as “any type of investment process that combines investors’ financial objectives with their concerns about environmental, social, and governance (ESG) issues.” And that definition, the World Economic Forum has noted, broadly consists of three categories: sustainable investing, socially responsible investing and impact investing.

Indeed, each of those three categories is unique in its approach, and, with that in mind, industry leaders recently discussed issues affecting the alignment of portfolios with clients' investment and personal goals at a conference hosted by this publication.

Panelists outlined the different SRI practices including avoidance screening, ESG integration in portfolio construction, shareholder engagement and investing in companies to solve social and environmental problems.

At 583 Park Avenue in New York, the first panel of the Family Wealth Report Summit in March included: Zachary Karabell, head of global strategy at Envestnet; Michael Lent, chief investment officer at Veris Wealth Partners; John O'Hara, senior advisor and managing director at Rockefeller & Co.; and Jackie VanderBrug, senior vice president at US Trust /Bank of America Private Wealth Management.

Stephen Lee, regional vice president of the private wealth division at Columbia Management Distributors, chaired the panel.

Perhaps the biggest point made by all of the speakers was that education – at both the advisor and client levels – is critical when attempting to marry together clients' financial and impact goals. Another big area of focus was around whether the concept of SRI has become “mainstream.”

Despite industry figures pointing to a clear surge in interest among investors to, as it is so often put, “do well while doing good,” Karabell has observed a “disconnect” between how many people actually invest their money in a “responsible” way and the values they articulate. “So I don't know how mainstream it is becoming,” he said.

Indeed, Karabell acknowledged that, globally, companies have become much more focused on sustainability and the environment. And there are numerous reasons for this, including, among others, that margin efficiencies are often coincidental with more sustainable business practices. “That is mainstream at just an operating business level,” he said.

Engagement

With that said, Karabell noted that it's an easier equation for individuals who are aware that they have enough funds to simultaneously act on their values than it is for those who want to act on their values but, ultimately, are going to look after their own immediate needs first.

“If someone has $100,000 and wants to make sure they have enough to retire, or send their kids to school, they're going to be much more susceptible to the fear that, somehow, values will impede returns than the person with $1 million or the institution,” he said.

On the other hand, O'Hara of Rockefeller & Co. believes that considerable progress is “finally being made,” echoed by VanderBrug's point that one in two US Trust clients previously surveyed said the social and economic impact of their portfolio is important to them.

“This is no longer a niche when half our clients are saying it's important,” she said.

VanderBrug also noted that US Trust's Women & Girls Equality Strategy has outperformed the S&P 1500 by 359 basis points over the last two years.

“We're not asking clients to give up their retirement, we're looking for strategies to put on our platform that give both financial return and positive social impact,” she said.

To that point, Karabell underscored a fundamental issue: that a significant number of investors believe that that is what they are being asked to essentially do.

Indeed, Morgan Stanley, for example, believes sustainable investing will be key to the mobilization of private capital towards addressing global challenges – but that the growth and development of this space remains hampered by a lingering perception that sustainable investments require a financial trade-off.

According to Lent, the crux of issue is at the advisor level.

“Ultimately, it's education at the level of the advisor, if you will, that is really important,” he said. “The approach I think you need to take to really help the client is educating yourself – or bring in third-party resources. With deeper knowledge of impact investing at the advisor level, it is much easier for the client themselves to get a handle on what they're looking for. In the end that is essential – client clarity.”

Momentum

VanderBrug noted that investors want to be shown that what they're doing is making a difference, although the industry at large is, however, still figuring out “active measurement.”

Meanwhile, “what we're telling clients is that it's great to have intention...but that you succeed by having good attention,” O'Hara said. “How do you keep that attention? That is what we struggle with.”

O’Hara is of the view that, to be successful, SRI has to be mainstream. And “I see it becoming mainstream,” he said. “We're all trying to do the same thing, it's just a question of what tools available to make a better investment decision.”

He added: “It is difficult for a smaller investor to use their voice – they don't have the resources. If a company flunks on one of our core 'pillars,' they may succeed on the other five. Do we own them and have the conversation about the one pillar on which they fail? Our feeling is absolutely yes.”

Concluding the session, Karabell outlined his goal: that, in ten years' time, this whole conversation will no longer be relevant, purely in a sense that much of what has been discussed will be embedded in what constitutes a “good” portfolio – that no one is segregated in a concept labeled as “impact.”

“No one says 'this is the well-managed Large-Cap Growth Fund,'” he quipped.

Meanwhile, Lent concluded that the main investor segments he sees driving SRI strategies today are high net worth women and Millennials. Also worth nothing, he added, is the huge transfer of wealth currently sweeping the US, with SRI playing an increasingly key role as families look to not just preserve their wealth but “do well while doing good.”