Is sustainable investing a recent phenomenon? With all the prominent public debate about ESG and DEI, boycotts and wokeness in today’s news, it may be a revelation to discover that mutual funds with a sustainability focus have been available to investors since the 1980s (and much earlier if you look at private investing strategies).
Sustainability approaches have evolved considerably in the last 15 years, with the introduction of many more refined strategies to tie your investing to your personal values. But let’s not forget the oldheads – there are many Aha Moments in what they can teach us.
Back in the day
As long as there has been investing, there has been responsible investing. At least, that (or the slightly longer “socially responsible”) was the name for it before the 1990s. This article on Investopedia summarizes the history well:
“Socially responsible investing…began in the 18th century with Methodism, a denomination of Protestant Christianity that eschewed the slave trade, smuggling, and conspicuous consumption, and resisted investments in companies manufacturing liquor or tobacco products or promoting gambling.”
Religious orders did the most to define and inspire the concept of responsible investing. But since the 1960s, other large-scale investors have joined them – mission-driven nonprofits, university endowments and wealthy families, among others.
It took some time before the idea trickled down to everyday individual investors, but by the mid-1990s, socially responsible mutual funds were a relatively well established investing option. Once new and better data about environmental, social, and governance matters became available in the early 2000s, the growth of sustainable funds and ETFs accelerated.
Meet the oldheads
You can find a list of ESG oldheads by going to the US SIF website and sorting their funds/ETFs chart by inception date. There are dozens of fund options that go back before 1995, such as:
- Calvert Equity Fund (inception date 1987).
- New Alternatives Fund (1982)
- Parnassus Core Equity Fund (1992)
- Neuberger Berman Socially Responsible Investing Fund (1994)
- Pax Ellevate Global Women’s Leadership Fund (1993)
The list includes many of the sustainable leaders you may have heard of, including funds from Domini, Green Century, Amana, Pimco and 1919.
What can the long-term success of the oldheads tell us about sustainable investing? There are a handful of lessons we can learn by examining this group, but the one thing you can’t take away is any sense that there is a “right” way to do sustainable investing.
“One thing I’ve learned is that no one sustainable fund will satisfy all investors,” says Stephanie McCullough, founder of Sofia Financial and an advisor that focuses on women’s financial goals. “But I’ve also learned that professional women in particular want to have an impact with their dollars. The long-term viability of these funds helps clients feel confident that they can do that.”
The lessons
The list of oldheads includes a wide range of strategies, from broad based core equity strategies like Calvert Equity to thematic funds focused on a specific priority, like Pax Ellevate. Some of the funds are massive – Parnassus Core Equity assets under management was just under $30 billion as of year end – while others, like New Alternatives, are far smaller (barely $275 million as of mid 2024).
Each of the funds on the list has a unique take on how they define sustainability and what data they prioritize. But there are a few takeaways that can be of use to sustainable investors. Here are a few of mine:
- There are sustainable versions of many types of funds. Among the oldheads, you’ll find strategies that focus on large-cap, midcap, and small-cap stocks; global stocks; bonds, municipals, and income-oriented strategies; and balanced or multi-asset funds. In other words, you can utilize sustainable approaches in most areas of a diversified portfolio.
- Performance is not the issue many think it is. As with any group of funds, results vary. But it is not accurate to say there is a specific performance penalty for investing in sustainability, particularly if you are looking at long-term results. Many of these oldheads have had sustained success precisely because their results have been competitive.
- It’s important to consider costs. Sustainable investing costs more, on average, in part to gather more data and pay for the talent to evaluate that data properly. Many of the oldheads have worked hard to bring costs down to a competitive level, but investors need to ask tough questions about how much a fund costs and what impact costs may have on results.
A firm foundation
Taken together, there are approximately $70 billion dollars invested in the oldhead funds listed by US SIF. That’s a lot of money that has been working to make an impact in the corporate sphere for the past 30 years. And it’s an indication that, while today’s sustainable investors may still be in the minority, they are in good company.
It may be an Aha Moment to learn that you are standing on the shoulders of giants when you invest in alignment with your values. But it’s even better to realize that your sustainable investments could be the inspiration for generations of investors to come.
More of The Aha Moment: Surprise! ESG is all about the data