Investing with Purpose — 5 Mission-Driven Trends to Watch
Anyone who even dabbles in investing has noted Tesla’s meteoric rise over the last year—a whopping 765% increase as of the time of this writing. The company’s stated mission? “Accelerating the world’s transition to sustainable energy.” (Just ask Google.)
But Tesla isn’t the only company making financial waves with a purpose-driven mission. As the world emerges from one of the most challenging years in memory, companies and investors alike are trying to do better—both financially and philanthropically.
Here are five mission-driven trends investors will want to watch in 2021.
1. Purpose-driven business and Millennials
With the rise of the Millennial generation, interest in purpose-driven business has soared. Look, for example, at Warby Parker, the glasses company that donates a pair of glasses to someone in need for every pair purchased. As of August, the company was valued at $3 billion.
Or Bombas, the sock company that built a $100 million-dollar brand by donating socks to the homeless, making investor Daymond John the biggest fish in the Shark Tank.
Since 2016, thanks largely to Millennials, impact-driven investing has risen more than 38% in the United States, to $12 trillion. For sustainable mutual funds, that percentage is even higher.
This trend isn’t showing any signs of reversing. Throughout 2021 and beyond, keep an eye out for up-and-coming companies that position themselves to make a difference in the world, especially by selling well differentiated products that are aimed at Millennial tastes.
2. Green-energy companies
When it comes to Millennial causes, sustainability still ranks high. The trend toward remote work, with fewer cars on the road and less pollution around the world, seems to have been one of the rare silver linings of 2020, giving the generation new hope for a green future.
Tesla’s green-energy mission has fueled its extreme growth, but it’s not the only company to stake a sustainability claim. NASDAQ recently hyped Plug Power, for example, the maker of hydrogen fuel cells whose shares are up over 600% year-to-date, while also reporting banner years for Enphase Energy and FuelCell Energy. The U.S. Energy Information Administration has reported that 91% of the energy used by U.S. transportation still comes from petroleum, leaving plenty of room for expansion—both for Tesla and its competitors.
With federal and state governments and even local energy companies offering various incentives for the purchase of solar panels, electric cars, and vehicle chargers, the green-energy sector should see a lot more growth in 2021.
3. Edge tech
What’s edge tech? If you’re not quite sure, you’re not alone. In a nutshell, edge technologies live at the “edge” of the internet, pushing the speed and intelligence of computers away from centralized servers and into the machines that use them.
Think of it this way: you know how sometimes you try to do something on your phone but you can’t because the internet is too slow? Imagine if that happened in your self-driving car. It’s still barreling down the highway at 60 miles per hour, but now it can’t see the road because it’s glitching, waiting to reconnect to the server that’s driving it.
Clearly, that would be bad.
For the next level of advancement in AI, artificial intelligence is going to have to exist in (or very near) the machines that use them, not on a cloud server somewhere, hundreds or thousands of miles away, with all the latency problems that come with that kind of distance.
Tesla is experimenting with smart-car advancements in driver assistance, but there are hints that GM and Alphabet’s Waymo might be farther along. Even Apple is targeting smart-car production by 2024. Still, self-driving cars are just one example.
The leaders in true cutting-edge technology (pun intended) are working on all kinds of AI and machine learning to make everything smarter, but they’re also working on putting internet hubs closer to everyday people and building out blazing-fast 5G networks.
With these advancements, look for huge growth from the leaders in AI, machine learning, and edge tech throughout 2021 and well into the future.
4. Ethical AI
If all this talk about AI advancement has you feeling a little uneasy, it’s not without reason. While AI hasn’t yet reached the level of intelligence that could give rise to the sci-fi nightmares of Hollywood films, real-world AI comes with a huge set of real-world problems—namely, the biases that exist in humanity itself.
That’s an important consideration for AI investors because when AI fails, it tends to fail in dramatic and alarming ways.
Can companies, and investors, avoid bias in AI tech while still reaping the benefits? Maybe. The biggest problems tend to come from AI that’s applied to big data, especially crowd-sourced data, because there’s a lot of human bias in collected “facts.”
But “blinding” AI and building in appropriate guard rails have shown promise in reducing the ethical issues of early AI applications.
For now, the important thing to remember is that AI will continue to grow, but those investments, like all investments, are not without risk. In researching stocks, as well as private equity, ask how companies are applying ethical guidelines to address these issues, and look for ethical AI to emerge as a growth leader.
5. More realistic representation
Some of the biggest failures in AI have derived from racial prejudice, another social issue that resonates strongly with Millennial investors, who are now taking active steps to invest in under-represented companies.
Take, for example, the Dream Exchange—a new Black-owned stock exchange launching in 2021. Forbes, which reported on the new exchange, did so on The Culture, its new “hub for elite leaders of color.”
In 2021, look for more and more companies to make a conscious effort to reverse the biases of the past, a purpose-driven mission that will resonate with Millennials and drive growth in that direction. Also, look for more investment reporting on Black-owned companies.
The entertainment industry in particular is showing a new level of enthusiasm for diversity and representation in advertising, movies, television, and all forms of media. Look for growth in production companies that cater to this demand.
The ESG Fund Alternative
For investors who are too busy to research and hand pick stocks, there are plenty of environmental, social, and governance (ESG) funds to choose from these days, such as Vanguard’s ESG U.S. Stock ETF, up more than 22% year-to-date as recently reported by CNBC.
The problem, historically, with the mutual fund route when it comes to socially responsible investing, is that ESG funds often come with higher fees because of the extra research that goes into them. However, when ESG funds produce higher returns, those fees can be worth it, not just from a socially responsible vantage point, but from a purely financial one as well.
Given more and more attention on corporate responsibility along with the increased assets under management of ESG funds, Morningstar has suggested that ESG investing might be standing at an “inflection point.” Look for ESG fund investing to continue following the Millennial vanguard through 2021 and beyond.
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