The sustainable investment tipping point is now

With ethical funds recently showing greater gains over their conventional peers over the last 12 months, high net-worth investors putting an increasing portion of their wealth into sustainability, 22% of all funds invested globally having a sustainable aspect and 74% of advisers reporting requests for ethical financial advice, the tipping point has arrived.

The tipping point was popularised in a book of the same name by author Malcolm Gladwell. It describes the moment when “a previously rare phenomenon becomes rapidly and dramatically more common.”

In climate science, it describes a transition from a stable state through a potentially painful transition period to a future stable state. Boy, have we got that painful transition to look forward to.

Sustainable, responsible and ethical investment was a rare phenomenon but has gradually become more mainstream, illustrated in the figures above, as awareness of the social and environmental connections and impacts of investment become more well-known and readily understood.

Climate change, population growth, resource scarcity and environmental degradation used to be the concern of a sneered-at enclave of “sandal wearing, muesli knitting, joss stick burning, bell clapping, environMENTALISTS” (the terms and emphasis are those of many bloggers, analysts and journalists).

In reality, these Malthusian ‘doom mongers’ have been proved right, and to an extent which probably surprised and depressed even them. But now is not a time for, “I told you so.”

The social concerns of religious investors and charitable fund trustees have figured greatly in the sector, giving it an ‘ethical’ badge which focuses on excluding ‘sin stocks’ (and why not – if your faith proscribes something or your charity challenges some issue, then it would be hypocritical to invest in that thing) but it describes a small, but vital, part of the sustainable investment sector today.

While this is a bit of a generalisation, another tipping point is that a new generation of accumulating (gathering together or acquiring an increasing number or quantity of assets), environmentally-conscious, digitally-connected 40-somethings have just now entered the investor space.

This is happening just as the (again, another generalisation) environmentally-unaware and digitally-unconnected generation starts decumulating (the use of accumulated assets to fund retirement income or other income requirements).

They are demanding social and environmental issues to be considered alongside the more red blooded and essential aspects of investment diversification, growth and income.

On hand to ‘help and guide’ the new generation of investors is an army of naysaying journalists, advisers and financial institutions hoping to dissuade them and encourage them to stick to the bankrupt historic model of unsustainable, irresponsible and unethical investment. The current model of investment they are wedded to is designed for yesterday’s investors, not tomorrow’s.

For these unreconstructed media, intermediaries and institutions, this shift may be fatal or at least prove to be a painful transition.

If the journalist you’re reading, person who is advising you or product literature you’ve been given, dismisses sustainability, responsibility and ethics, it’s time to change who you read, who advises you and who you buy from. Especially if you have children who will inherit the world you have created through what you invest in.

In a classic rear-guard action, the naysayers will initially dismiss the very idea of sustainability, then the evidence supporting the idea and finally the person passing on the message. They will then change the terms of the debate.

Performance was “poor”, but now that it’s better, it hasn’t been better “over the long-term”. They now say, “Look at all those funds which include ‘unethical’ stocks”, or haven’t signed up to various codes of practices, despite “claiming” to be ethical or sustainable.

We’ve seen these diversionary tactics before: over slavery, universal suffrage, civil rights, asbestos, tobacco and climate change. Incumbent industries and their subsidised friends in the media have no interest in seeing the status quo, err, ‘un-status quo-d’. He who pays the piper, and all that.

They cannot make the connections between ecology, society and economy because they never look that closely, or don’t want to understand how the systems interact.

The increasing desire to match personal values with investment value is often met with eye-rolling, patronising, weary indignation and trivial diversions.

“What? You say you don’t want to screw up the planet and its people for a marginally better profit today? Tsk, how very sweet and naive. Tobacco is a perfectly good defensive stock even if it does means selling cancer sticks to poor children in Africa. It’s where the growth is (both shareholder and malignant). Pumping toxic substances into the air, land and sea may be poisoning your children but it’s a fair price to pay for an extra fraction of a per cent on your portfolio. Can you afford not to, I ask you? No, really it is worth it. Hello? Why are you walking out?”

In the coming period of volatility, uncertainty, complexity and ambiguity, sustainable, responsible and ethical investment simply represents a smart diversification for the sensible and even cautious investor. Whatever investment journals and financial services say.

And let’s not forget, for all the arguments about performance, volatility and possible inconsistencies, in all societies, faiths and arts (art itself, literature, drama, music and films), it is rarely the reckless, profiteering, selfish individual who is the hero, but the responsible, generous and selfless ones. Exclude from that the dysfunctional individuals who see Gordon Gecko (Wall Street), Jim Young (Boiler Room) and Blake (Glengarry Glen Ross) as role models.

We choose not to be part of the former anti-heroes of inertia and despair, but to be part of the latter, infinitely more enlightened group. These pioneers and disruptive voices will be the future heroes of investment and innovative enterprise and we salute them.

Further reading:

35% of investors are self-proclaimed ethical investors. This is no ‘damp squib’

‘There are no moral or ethical considerations when investing’

Ethical investment: better a diamond with a flaw, than a pebble without

There is such a thing as an unethical investment

The Guide to Sustainable Investment 2013