Put your money where your soul is
Might we be seeing the sun setting on short-termism—the practice among analysts and investors of measuring success only by quarterly earnings? The numbers suggest the answer is yes. Almost half of all high-net-worth investors say they are interested in aligning more of their investments with their values. The assets managed under socially responsible principles—that is, guided by environmental, social, and corporate-governance criteria—doubled to more than $6 trillion between 2012 and 2014. And among millennials, a demographic group that will inherit more than $30 trillion over the next few decades, 92% believe that a business’s purpose extends beyond profit.
Given these trends, the arrival of Fortune’s first Change the World list—a roster of companies whose management conforms to similar principles—was only a matter of time.
The groundwork for this evolution in investor behavior has included the accelerating growth of impact investing—that which is intended to generate both financial return and social or environmental impact. Based on surveys by the J.P. Morgan/Global Impact Investing Network and others, more than $60 billion is under impact-investment management today. Historically such investors have accepted lower financial returns to achieve measurable change, and that fact has kept many investors and asset managers away from the practice. But that may be changing. We’re seeing the emergence of a broader cohort of investors who will accept more risk to bring their investments in line with their beliefs (and their clients’). At the behest of such investors, BlackRock (BLK), the world’s largest asset-management firm, launched an impact-investing portfolio earlier this year. And the Norwegian Global Pension Fund, the world’s largest sovereign wealth fund, recently made the values-driven decision to no longer invest in companies that depend on coal for more than 30% of their energy needs.
As the behavior of investors changes, so too does behavior among companies competing for those investments. Businesses may find that they must “do good or lose out” to more-conscientious rivals. Indeed, companies that continue with business as usual are missing the competitive advantage that companies on this list have embraced.
Of course, corporate leadership is not just about attracting investors; it’s also about doing what’s right for business. Current trends go beyond previous models of corporate social responsibility precisely because more companies see that a focus on social and environmental impact affects the bottom line. As a result, companies are reimagining how they source, operate, and innovate to advance a healthier planet and create more inclusive economies—those with more opportunities for more people—as part of a virtuous business cycle.
For executives looking to take this approach, there’s good news: You don’t have to go it alone. There are models to learn from and emulate (just look at this list), partners waiting to lend expertise, and more sophisticated systems for measuring and proving impact beyond financials. Socially responsible management is no longer the Wild West but the new normal. And in the near future, when you do what’s right for your long-term success by doing more good for the world, investors won’t just give you permission—they’ll reward you.
Judith Rodin is the president of the Rockefeller Foundation and a co-author of The Power of Impact Investing: Putting Markets to Work for Profit and Global Good.
To see the full Change the World list, visit fortune.com/change-the-world.
A version of this article appears in the September 1, 2015 issue of Fortune magazine with the headline “The End of ‘Short-Termism’.”