Let’s imagine you are at or near retirement, you have done well in your career and have money invested with a Registered Investment Advisor (RIA). You have read the articles about how companies and large institutional investors are emphasizing sustainability and considering Environmental, Social and Governance (ESG) issues when making investment and corporate decisions. You want in on the action, so what do you do? You approach your RIA and make sure your money is being invested with the same values in mind, of course. Luckily for your RIA, Ethic is there to help screen for and craft the investments that match your sustainability criteria.
New York City-based Ethic, founded in 2015 by Johny Mair, Doug Scott, and Jay Lipman, raised $13 million for their Series A last week. It was led by existing investors Nyca Partners, other investors in the deal included Fidelity Investments and Sound Ventures, Guy Oseary and Ashton Kutcher’s VC firm. Ethic describes themselves as a tech-driven asset manager, their platform allows financial advisors to create custom separately managed accounts (SMA). Think of it as a screener that goes beyond company ESG scores when looking at investments, allowing you to choose which causes you care about, and then packaging them into a passive portfolio.
I was able to catch up with Alex Laipple, Head of Business Development, to get a better understanding of how Ethic plans to meet the growing demand for sustainable investing.
“Sustainability means different things to different people,” Alex mentioned, “and they look to their wealth adviser for guidance on where they can invest.” Over the past several years, as retail and institutional investment habits shifted toward more sustainable investing, so have the types of investment products available in the market. Many of the currently available products have seen record growth, the ETF universe of sustainable funds, for instance, attracted more than $2 billion in net flows in 2018, doubling its 2017 total and setting a record for the past decade.
“We’re working with the advisors,” Alex added, “but also, through the advisors, we’re working with the end-client directly to understand what they are trying to accomplish”. Alex explained that there are hundreds of causes that can be targeted and invested in, and people are not always satisfied with a generic ESG-focused ETF or mutual fund.
“If you think about the interaction between the financial advisor and the end-client, the way they are measured is on performance. Their performance is delivered [to the client] through quarterly performance reviews. We are adding an additional layer to that now, where you can actually see the impact of the investments themselves … ‘here’s the impact you’ve had on things like carbon emissions, gender equity, and corporate governance.’”
By zeroing in exactly on what the client cares the most about, and then allowing the advisor to report on metrics beyond financial performance, they create their “end-to-end” solution. A smart strategy, especially when considering some of the investment trends of the Millennial generation:
- Millennial investors are nearly twice as likely to invest in companies or funds that target specific social or environmental outcomes.
- 29% of investors in their 20s and 30s seek a financial advisor that provides values-based investing. Millennials rank this priority third in a list of nine identified priorities.
- 17% of millennials indicate they seek to invest in companies that use high-quality ESG practices, compared with 9% of non-millennial investors.
- 15% of millennials indicate they would exit an investment position due to objectionable firm activity, compared with 7% of non-millennial investors.
“We’ve gone from one hundred million in assets late last year, and in the past few months, we’ve jumped to two hundred million,” Alex mentioned. The funds raised in this A-round will help Ethic expand their client service team, meet the demands of new advisors and end-clients, and improve the platform technology.
At Impakter, we are thrilled to see impact-investing and a focus on sustainability take hold in the markets, and we hope Ethic continues to enable advisors and institutions to take action.
In the Cover Picture: Two People at a Table. Credit: Pixabay.
EDITOR’S NOTE: The opinions expressed here by Impakter.com columnists are their own, not those of Impakter.com.