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Tuesday, April 24, 2018

Strategic CSR - Human psychology

The article in the url below presents a fascinating, counter-intuitive perspective on the SRI industry:
"An analysis of fund inflows into U.S. stock ETFs and mutual funds that invest with a social, governance or environmental purpose (often called sustainable, ESG or impact funds) paints an interesting picture of investor psychology. Namely, while most traditional investors run for the hills when news comes out that conflicts with their expectations or ideas about the world, sustainable investors appear to dedicate more of their money to the cause when news or policy decisions that go against their values are announced."
The empirical support for this conclusion is fascinating:
"In perhaps the clearest representation of this, during December 2016, one month after the election of Donald Trump, a staggering $2.1 billion flowed into U.S. equity sustainable funds—representing a 3.5% increase in the category's total assets under management as of Nov. 1."
How exceptional was this "Trump bump"?
"The 'Trump bump' (which was the largest single monthly increase into the sustainable-investing class ever) was 170% larger than the next-largest one-month inflow. And the growth has continued. Since the election, $8.1 billion has flowed into these funds, a 13.1% jump from the assets under management on the eve of the 2016 presidential election—by far the greatest percentage inflow into any class or style of fund (e.g., value, growth, small-cap funds) since the election."
The authors extended their investigation, also looking at flows into environmental funds following the passing of COP 21 in Paris and, later, the announcement by the U.S. that it was withdrawing from the pact:
"In the month following the Paris Climate Agreement (which was signed in December 2015), $50.1 million flowed out of environmental-focused funds (amounting to a 1.05% drop in assets under management from the previous month). Conversely, when President Trump withdrew the U.S. from the climate agreement in June 2017, $98.5 million flowed into them (a 1.32% increase in assets under management)."
Similarly, the #MeToo movement appears to have influenced money flows into and out of social funds that employ gender or diversity filters:
"Surrounding the accusations of sexual abuse that came to light around Hollywood's Harvey Weinstein, Kevin Spacey and other celebrities, iShares MSCI KLD 400 Social ETF (DSI)—the largest socially conscious ETF—saw inflows of $48 million during November 2017. This was the fund's single largest monthly inflow, pushing it close to the $1 billion mark in assets. And, it isn't just individual investors who seem to be moving their money. In the four months following the news about Mr. Weinstein, TIAA-CREF Social Choice Equity Fund institutional class (TISCX) jumped $211 million (starting from $1.9 billion)—a striking 11% inflow."
People are both fascinating and frustrating, which at least keeps all of us social scientists in a job!
"Many factors are driving the increasing popularity of sustainable investing, including demographic demand (high among millennials and women), generational wealth transfer, a strong market and new sustainable financial products. But macro political and cultural trends are clearly the largest drivers—specifically, negative news that conflicts with sustainable investors' views of the world. Asset managers and wealth advisers should take note: Politics is personal, especially when it comes to investing."
This study reminds me of patterns around gun sales – when Obama (a proponent of gun reform) was elected, gun sales spiked (due to a fear that he wanted to remove guns from society by making them illegal), while sales dropped after the election of Trump (a Second Amendment supporter), leading to the bankruptcy of the 200-year-old gun-maker Remington in March. It also reminded me of subscriptions to The New York Times or viewership of CNN, which jumped the more that these media institutions have come under attack for their supposedly biased reporting.
Take care
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Ethical Investing Seems to Thrive on 'Bad' News
By Derek Horstmeyer
April 9, 2018
The Wall Street Journal
Late Edition – Final