Larry Fink, CEO of BlackRock, which manages more than $6 trillion of assets, said last week that “how to invest in environmental, governance, and social issues is becoming the number one conversation we’re having with clients.”
Environmental, social, and governance (ESG) investing is indeed the new hot topic in finance circles. By 2016, a quarter of the world’s professionally managed assets, such as stocks and bonds, were considered sustainable investment assets, according to the Global Sustainable Investment Alliance , and the share is expected to keep growing.
Major nonprofit and non-governmental organizations, like the NAACP and the YWCA, have found a way to take advantage of this moral turn in financial markets through another fashionable finance product: exchange-traded funds. The passive investment products, which track the performance of an index and can be traded on an exchange like a stock, are now a $5 trillion market, up from about $700 billion ten years ago.
By dangling the potential of inclusion in their ETFs, these groups are hoping to encourage good corporate behavior that aligns with their values. Corporations that promote equal pay, parental leave, socially-responsible supply chains, anti-discrimination policies, and community development programs can earn their way into these funds and tap capital from socially-minded investors, a growing class, especially as millennials become more active investors.