The growing field is expected to gain even more popularity, especially among millennial investors.

Sustainable investing, once a niche field, is now on a roll: Roughly $30 trillion is already being deployed in private and public investments that aim to achieve both financial returns and social or environmental impacts.

Jessica Matthews, global head of sustainable investing at J.P. Morgan, envisions even more growth down the road. “Millennials are driving this” she said, “with the massive transfer of wealth to the next generation that is about to occur, we anticipate a wave of interest.”

For those curious about the sustainable investing movement, J.P. Morgan recently convened a panel in Houston to discuss the industry and a host of new opportunities.

Amy Bell, senior director at Tideline, an impact investing consultant, said she starts by asking clients, “What is a longer-term systemic change that you would like to see in the world?” Once you know that, there are a lot of different paths forward.

Sustainable focus

The global growth story in sustainable investing continues, with Europe and United States leading the way in assets under management, and Japan experiencing the sharpest increase. Source: 2018 Global Sustainable Investment Review
Table that describes the global growth in sustainable investing.

Until recently, the most common sustainable investing approach involved simply excluding companies that an investor might have found objectionable, such as those manufacturing tobacco or firearms. But increasingly, investors want to integrate Environmental, Social and Governance (ESG) factors as a form of smart risk analysis, and even to target specific issues, such as gender diversity or clean water.

The panel also noted that while ESG factors are often grouped together, investors do not have to pursue all of them equally. Increasingly, for example, a broad range of investors consider Governance factors – for example, the quality, diversity and compensation of a company’s management --  key to calculating long-term returns.

While ESG factors are often used to identify risks companies face over the long haul, they can also be deployed to uncover investment opportunities, said Aubre Clemens, executive director of manager selection at J.P. Morgan “You begin looking at how changing weather patterns are going to affect supply chains as one risk mitigating factor,” she said, “but you also see how products like LED lighting, which can reduce energy costs, will be in high demand.”

Ross Baird, founder of the impact venture firm Blueprint Local, says using a different lens helps him see companies that others have passed by. “Almost 80% of startup capital goes to New York, Massachusetts, and California, while only2% of startup capital is allocated to female entrepreneurs and 1% of startup capital goes to people of color,” he explained, “Blueprint Local follows the same approach of my prior venture firm, where we built a very different portfolio—about 85% of investments we've made are outside of those three states, 35% are in women, 25% are in people of color, and we're outperforming vintage year funds mainly because we're buying into companies that are dramatically undervalued by the market.”

Pie chart that states that 26% of assets managed in the US are within the Sustainable Investing space.

The panel agreed that there can be advantages to partnering with an investment professional. Clemens noted, “There is a lot of new product coming into the marketplace that is labeled as sustainable or impact investing, and it requires an experienced due diligence team to assess how management teams are actually integrating ESG and impact into their process.”

Though some still associate ESG and impact investing with poor performance, recent studies have shown the opposite – there is increasing evidence that sustainable investing can perform in line with, or even exceed, “traditional” investment portfolios. And according to Bell, “In another 10 years, we won’t be talking about tradeoffs, but rather about how value can be created by embedding these types of ESG considerations into portfolios.”