So irrelevant were sustainability issues to the reasonable investor of yesteryear that the SEC ruled not only once, but twice, against attempts to mandate disclosure of companies' environmental and civil rights records. Their conclusion: The information was not clearly significant or "material" to investors. That conclusion was drawn in 1975, and again in 1980 in response to petitions made by the Natural Resources Defense Council (NRDC).
That was then.
Like the world we live in and the market that fuels our economy, the "reasonable investor" has evolved -- values have shifted, and what was once irrelevant has grown increasingly material to investment decisions of today. Why? Simply put: Mega trends, such as population growth, food scarcity, and climate change have made sustainability issues a major factor in long-term value creation in every industry.
And this means something to the Millennial generation -- those who grew up to images of melting ice caps and dwindling polar bears, toppled forests and rising fuel prices. This is the new generation of investors, and unlike the generations before them, they know what's at stake. Their values will likely be reflected in their investment decisions -- and Wall Street has taken heed.
According to Accenture, members of the Millennial generation will inherit $30 trillion from their Baby Boomer parents, in North America alone. As a result, financial advisory firms are adapting technology, investment philosophy, and personnel to meet their needs.
Adapting to their investment philosophy is key because Millennials believe business has a role to play in ameliorating sustainability issues. According to the 2014 Deloitte Millennial Survey, millennials think business can do much more to address society's challenges in the areas of most concern: resource scarcity (56 percent), climate change (55 percent) and income equality (49 percent). And Millennials aren't electing values over value, they expect both -- in Deloitte's 2012 survey, almost all Millennials said it is acceptable for business to make a profit from innovations that benefit society.
In response, Wall Street has created more products dedicated to investing in sustainability-oriented companies. While that's a good start, it isn't enough to give these investors the tools they need to properly assess a company's performance on sustainability issues, especially those beyond the environment. Investors today are inundated with lists of "green companies" -- how can they assess the real impact these companies are having and compare corporate performance?
They can't. And this is a major gap that Wall Street has an opportunity to fill as it seeks to woo this generation and adapt to its philosophies. With no sustainability standards set in place, investors are limited in their ability to forecast challenges and identify opportunities.
The Sustainability Accounting Standards Board (SASB) was created to fill this void in the market and facilitate capital formation. SASB's goal is consistent with that of the SEC -- to protect the investor. And in today's world, that requires the creation of sustainability accounting standards that will empower investors with the information they need to evaluate how companies are addressing the sustainability issues most likely to impact their business.
Standardized sustainability information is even more important, considering Millennials' focus on metrics. Also according to Accenture, a majority of Millennials identify as "self-directed" investors, taking time to research options and check multiple sources before making major investment decisions.
Again, a lot has changed since the SEC's ruling in 1975. And the Millennial investor faces a different world than the reasonable investor of that time. The SEC justified its ruling back then by pointing out that a reported 0.0005 percent of assets under management were interested in environmental, social, and governance (ESG) issues in the early '70s. Compare that to a more recent statistic: According to a 2014 report from The Forum for Sustainable and Responsible Investment, sustainable, responsible and impact investing practices now represent nearly 18 percent of the $36.8 trillion in total assets under management in the U.S. capital markets, and is likely to continue to increase as new generations of investors enter the market.
SASB was created to provide sustainability standards to ensure that market infrastructure is in place for the reasonable investor of today -- and tomorrow -- so that they may be able to act with conviction on their values and stay invested in the capital markets. Let's face it -- we need to keep future generations invested not only for the sake of our economy, but also for the world we live in.