Lastyear, the US SIF Foundation's report on US Sustainable, Responsibleand Impact Investing Trends indicated 26 percent of all investmentswere placed in SRI funds. (Photo: Shutterstock)

You've probably heard of “socially responsible investing” (SRI) based on“environmental, social or corporate governance” (ESG) criteria. Ifyou're experienced, you might wonder, “What brought this on?”

Those who remember the anti-Apartheid “South Africa Free”portfolio advocates of the 1980s probably also remember howresearch showed those portfolios underperformed regular portfolios. They learned“socially responsible” investing wasn't quite “responsible,”especially if you held a fiduciary position.

Related: How accurate are social and environmentalinvestment ratings?

But the dreams of those social advocates didn't die at the handsof early studies. If anything, the parade of headlines decrying alitany of ethical breaches by publicly traded companies onlyemboldened the proponents of socially responsible investing.

Christopher Carosa, CTFA, ischief contributing editor for FiduciaryNews.com, a leading providerof essential news and information, blunt commentary and practicalexamples for ERISA/401(k) fiduciaries, individual trustees andprofessional fiduciaries.

Academic research tried to help by reframing the picture. InDecember of 2007, researchers concluded: “In the results, theregular funds performed better than the SRI funds. However, aproblem with these types of tests is that they do not control fordifferences in fund management. We have therefore developed themethod of evaluating SRI funds by decomposing fund performance intofirm level performance and fund management performance.”

Lo and behold, this new research strategy produced the desiredresults. It didn't necessary show better performance, but it didproduce additional metrics beyond investment performance to justifyESG-based investing.

But not all researchers were sold on this new approach. Someacademics saw through it. Dr. David Vogel, professor in businessethics at the University of California Berkeley's Haas School ofBusiness, wrote in the Wall Street Journal, “Studies that haveshown a connection between certain aspects of corporate socialresponsibility and future share prices don't negate studies thathave shown no effect or even a negative impact from suchresponsibility.”

Yet, we see more assets going into ESG-based investments. Lastyear, the US SIF Foundation's report on US Sustainable, Responsibleand Impact Investing Trends indicated 26 percent of all investmentswere placed in SRI funds. This represents a 38 percent increaseover two years.

What might explain this trend? If you're a cynic, you might pegit to a lack of objective consensus on the definition of thespecific ESG criteria used by portfolio managers. That wouldsuggest the numbers are meaningless.

This, however, ignores the reality of the growth in “green”advertising—even oil companies tout their environmentalfriendliness. What drives this advertising? The same thing thatalways does: demographics.

The US Census projects the millennial generation will soonsurpass the baby boomer generation as the largest living generationin America. This drives the marketplace—and the markets.

Chuck Underwood, in his book “America's Generations,” writesthat millennials “prefer to do business with companies that aregood corporate citizens.” This applies to buying stocks just asmuch as petroleum products. It suggests ESG may not be a fad,although it still poses a threat to investment performance, and,worse, it may present an opportunity for marketers.

Read more: 

• Boom in socially responsibleinvesting
• ESG interest is surging — where are theadvisors?
• BlackRock, Wells Fargo said to push ESG funds in401(k)s