Investing in Socially Responsible Companies

What does social responsibility have to do with the financial-services industry? More than you may think. The December 2015 global climate-change meeting in Paris, France, has once again catapulted the topic of climate change into political discourse in the United States, with the potential to harden supporters further on both sides of the issue. Currently, few households strongly agree that they would invest in companies with a strong record of protecting the environment or purchase socially responsible investments. However, being concerned about climate change is somewhat indirectly connected to investment willingness. The types of households paying attention to financial-services companies' social-responsibility record are poised to increase in number.

As part of his 2008 platform, newly elected president Barack Obama acknowledged the importance of reducing greenhouse-gas emissions and made a commitment to US leadership in the climate-change initiative. Between 2008 and 2014, however, support for investing in companies with a sound record of protecting the environment has fallen from 20% of all US households to 9%; during the same period, interest in purchasing socially responsible investments has declined from 9% to 5%. Investor concerns caused by the Great Recession may have trumped investor concerns about the environment.

Segmenting by generational cohort households that mostly agree that they are interested in purchasing socially responsible investments is instructive because it suggests two important developments. First, younger households are more likely than all households to be interested in social responsibility; thanks to college and university programs and media attention, social responsibility translates to Millennials—the next generation of financial-services-company customers—as sustainability. Second, in 2014, Boomers (for the first time) are more likely than average to show a preference for investing in companies with a sound record of protecting the environment—many are current investors.

Although "greenwashing" has proved ineffective, resulting in a backlash against companies that have inauthentically tried this tactic, an opportunity exists to create a timely, meaningful enterprise campaign, for example, about an organization's low carbon footprint or support of sustainable businesses.