Drought's silver lining: Attracting investors to sustainability

Earlier this summer, California Gov. Jerry Brown announced mandatory water restrictions that renewed concerns about water availability in California and the potential economic impacts of the restrictions.

Among the many stakeholders who can benefit from finding solutions to the drought are California investors, who have the capital to help influence which companies thrive and which are left out to dry.

Every company wants to be attractive to investors by being a low-risk, high-reward stock option. Now, there’s another way to appeal to investors, and it is grounded in investors’ personal interests. Socially conscious investing describes the attention investors are paying to companies that solve environmental and social problems such as the drought.

By the start of 2014, nearly $6 trillion — one in every six American dollars under professional management — was invested through a strategy that considered both financial return and social good. That’s nearly double the amount recorded by the same U.S. Sustainable Investment Foundation study two years prior, which found 3.5 trillion American dollars being invested through similar strategies in 2012.

While your company’s credit rating, based largely on your financial responsibility and good earnings potential, always will be the most important criteria any investor will consider, this kind of evidence suggests that a company’s appeal to social or environmental interests is beginning to translate into actual investment dollars.

Socially responsible companies can capitalize on this trend by better understanding what exactly captures investors’ interests. In a recent Morgan Stanley survey of high-net-worth investors in Los Angeles, 56 percent of respondents indicated that issues of personal importance affect their actual investment decisions. Age factored heavily into this finding, with younger investors edging out respondents age 65 and over by 20 percent.

In the same poll, respondents also demonstrated a specific interest in water. Water conservation was ranked as investors’ top issue of personal importance, cited by 94 percent of respondents. This could translate into more investment dollars for companies whose mission it is to help other businesses conserve water.

Investing in sustainable companies is not just attractive because it’s personally or morally compelling. Sustainable investments now are often financially competitive with less sustainable options in many industries. Recognizing this growing trend, some financial institutions have created risk-adjusted platforms that help guide investors through socially responsible investing. These platforms can include a range of available products, research and strategies to help investors align their financial and societal goals.

The popularity of these programs suggests that this trend is only increasing, and investors are willing to consider your company’s corporate values and practices along with your credit rating.

Your practices still can influence investors’ decisions from a personal standpoint even if it is not your company’s goal to solve the drought or reverse climate change. One way that investors express their personal concern about an issue or a company is by refusing to purchase “sin stocks” or companies that are either directly involved in or associated with activities widely considered unethical or immoral.

Hopefully you have other reasons for not developing disreputable corporate practices, but reckless water usage now may be reason enough for investors to put a company on their list of sinners.