Why ‘Impact Investing’ Will Pay Off In 401(k) Performance ~ 401(k) Specialist

Originally published in 401(k) Specialist: http://401kspecialistmag.com/impact-investing-pays-off-401k-performance
By John Sullivan

Investment growth cliches aside, more 401(k) participants are turning to impact investing

dreamstime_s_51692231-777x437Walk through the doors of Green Alpha Advisors in Boulder, Colorado and you get what you’d expect; an open space floor plan with an older model bike in the entryway that’s art (or maybe not) and a garage door to open on sunny days. Add in the organic nut company next door and the impact investing stereotype is complete—and paying off handsomely.

The firm, founded 2007 by Garvin Jabusch and Jeremy Deems, grew out of the socially responsible investing movement of the last decade and “was probably a little ahead of the curve,” partner and COO Betsy Moszeter admits, but it’s perfectly positioned now for a millennial generation that wants to do well by doing good.

“Investors, and millennials in particular, are looking for green options in their 401(k)s, and plan sponsors are beginning to respond,” Moszeter explains, while also referring to new regulations that require 401(k) advisors and plan sponsors to consider impact investing on their investment menus.

When asked about the old Vice Fund argument, that investment returns and investor ideals are mutually exclusive and one must be sacrificed for the good of the other, she doesn’t buy it, and points to a recent Morgan Stanley report tilted “Sustainability Through the Eye of the Investor” as proof.

It finds 71 percent of individual investors are interested in sustainable investing and two-thirds of investors expect sustainable investing to become more prevalent in the next five years.

As for millennials specifically, “they are twice as likely to invest in companies or funds that target specific social or environmental outcomes, more likely to invest in companies or funds that use ESG practices to create value differentiator and more likely to exit an investment position because of objectionable corporate activity.”

It was with these types of metrics in mind that the firm created the “Green Alpha Next Economy” investment model, which focuses on “companies that offer innovative sustainability solutions and avoids companies that contribute to resource scarcity and global warming.”

And about the aforementioned performance? In March, the Shelton Green Alpha Fund (NEXTX) on which it sub-advises was awarded an overall sustainability rating of Five Globes by Morningstar. The fund also received four stars from Morningstar, which ranked NEXTX in the top the 8 percent among 646 Mid-Cap Growth funds.

The Chicago-based research behemoth’s new “globe” sustainability rating helps investors evaluate funds based on environmental, social, and governance (ESG) factors and provides sustainability ratings for approximately 21,000 mutual funds and exchange-traded funds. It ranks funds relative to their Morningstar category by assigning a scale of 1 to 5 globes.

Lest one worry about “fossil creep” in its fund, an issue all too common in the sustainable investing space, the firm also proudly notes that Shelton Green Alpha Fund has earned the maximum of Five Badges, indicating the fund is “clean” in each of five distinct fossil fuels categories from FossilFreeFunds.org and shareholder advocacy nonprofit As You Sow.

“NEXTX meets all five of our criteria for being fossil fuel free – from excluding fossil fuel reserves, not investing in our Filthy 15, or owning coal, oil/gas or fossil-fired utilities,” Andrew Behar, CEO of As You Sow, said upon the organization’s ratings announcement. “We are happy to see that Green Alpha is among the leaders in providing quality access to investments that are free of the financial and environmental risks associated with fossil fuels.”

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Important disclosures http://greenalphaadvisors.com/about-us/legal-disclaimers/

from McKenzie Pass

from McKenzie Pass