Broker Check

Ethics and Investing: How Much Do We Care?

| September 20, 2019
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A couple of years ago I said that I was going to keep a blog on here and rather quickly got the feeling that it was the equivalent of shouting into the abyss, I could definitely hear it but I wasn't sure anybody else could (or maybe wanted to).  Fast forward to May of this year and we were conducting interviews for a new assistant/office manager to take over for our long serving, and now retired, Ginny Garcia and the eventual hire said she had searched through our website (First Landing Financial) and stumbled across the blog and asked why it had stopped.  I didn't have a good answer for her.  So, I guess, back into the abyss I shall now scream!

Earlier this year as I was conducting our annual (or quarterly, semi annually) review meetings with our clients we went through the standard procedure or discussing the current status of all the investments in the plan, plan demographics, IPS, etc.  Each year though we also like to provide a bit of an update on some things that we are seeing in the retirement plan marketplace, trends if you will.  In year's past that might have been plan design ideas, custom Target Date Funds, CIT's but this year was a discussion of a (supposedly) growing trend of plan's incorporating ESG investments into the investment lineup.  Most of the time the first question was, what's an ESG?  In a seemingly never ending world of acronyms it is easy to get lost, especially when these investments used to be referred to with the entirely different one of SRI.  Back then we called them Socially Responsible Investments but now ESG refers to the categories they usually cover; Environmental, Social and Governance.  Once the explanation was done with I was often times met with scoffs, eye rolls or laughter (sometimes all three).  There were a few times though where it sparked a deeper discussion of exactly what that meant and lead us to develop a way in which we could take into consideration ESG investing moving forward in regard to their plan's fund lineup.  The real question that we should be asking, especially those in a position to choose which investments are available to other employees, is who really cares?

The short answer to that question is actually another question, how old are you?  Earlier this year Allianz Life Insurance Company conducted a study (ESG: Ethics and Investing) to try and determine the appetite, or lack thereof, for ESG investing in general.  Not surprisingly a large percentage, 79% to be exact, said they loved the idea of investing in a company that cares about the same issues as they do but the numbers for those that actually do so are much, much lower.  When the participants of the study were asked how many of them had even discussed ESG investing with their financial advisor 25% of Gen Xers and only 11% of boomers responded to the affirmative.  However, when millennials were asked the same question 55% said yes.

So back to the original question of who really cares?  Judging from the meetings I was conducting the answer I received more often that not was plan sponsors didn't really care.  Looking at the Allianz study though that really shouldn't be too surprising because most of the people who fill that position, whether it be the business owner or a committee, don't fall into the millennial age bracket.  What about their employees though?  As has been discussed ad nauseam the baby boomer generation is approaching, transitioning into or already entrenched in the retirement phase of life.  As a result, millennials (and Gen Z behind them) are becoming a bigger portion of the work force each and every year.  Moving forward should the people who make decisions on the investments available to their employees consider factors that the statistics tell us more and more of their employees care about?  My guess is that the scoffs and eye rolls will still be a common reaction in the near term but it might make sense to at least stop and consider the topic at some point in the future. 

On a different note: now that I am back to my abyss screaming for industry related topics I also wanted to continue the tradition of also mentioning something I have recently been enjoying musically (my personal escapism of choice).  Right now there is a very easy choice for what I wanted to mention and it is a new album from a powerhouse group of artists; Brandi Carlile, Natalie Hemby, Maren Morris and Amanda Shires collectively called the The Highwomen (The Highwomen).  The name is derived from a hat tip to the Highwaymen, a legendary group that included Johnny Cash, Waylon Jennings, Kris Kristofferson and Willie Nelson.  That alone creates quite a mountain to climb when it comes to who they may be compared to but it is one they manage to very successfully climb with their debut (as a group) album.  For anyone who might actually stumble across this blog post and hasn't heard of this group, I would encourage you to listen to the entire album but I'd specifically suggest either the song Crowded Table or Loose Change. 

Opinions expressed are those of Matthew Callan and not necessarily those of Raymond James.

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result in investment returns that may be lower or higher than if decisions were based solely on investment considerations.

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