One New York-based startup is tapping into this trend, trying to bridge the gap between investors and the ever-increasing world of sustainable-focused products. Ethic, founded in 2015, works to create investing portfolios that can be customized for individuals and institutions.
On Tuesday, the startup announced it raised $6.8 million in its first funding round.
Ethic received backing from impact investor Justin Rockefeller and venture capital firms run by former BlackRock vice chairman and ex-Barclays Global Investors CEO Blake Grossman and ex-Visa president Hans Morris, among others.
“This is a fascinating area of asset management, since literally every asset manager, wealth manager, family office and endowment is talking about their ESG strategy,” Morris, now the managing partner of venture firm Nyca Partners, told Business Insider. “How it evolves is still unclear, but we think the focus and capabilities of Ethic can provide the essential tools for all firms as they sort this out.”
Investments focusing on ESG – environmental, social and governance factors – have become more popular for both institutional and retail investors, as both groups increasingly prioritize social good and positive returns. From 2014 to 2016, the US saw a 32.7% increase in socially responsible investments which assets topping $8.7 trillion, according to the Global Sustainable Investment Alliance’s biannual report.
Ethic was the first investment out of New York-based Nyca Partners’ third venture capital fund, and its first investment in the company. Other venture capital firms in this funding round included Grossman’s ThirdStream Partners, Kapor Capital and the Urban Innovation Fund.
Besides Ethic, there are dozens of other asset management firms focused on socially responsible investments. But Nyca Partners’ Morris said Ethic stood out because of the team’s capabilities and experience; its focus on institutional distribution; its customizable ESG dashboard; and the technology behind portfolio construction, tax efficiency, testing and analytics.
Ethic’s funding round sits between seed funding and Series A, co-founder Johny Mair told Business Insider. He and his other co-founders, Doug Scott and Jay Lipman, all previously worked for Deutsche Bank, among other institutions, in various roles.
“What we recognized was when it comes to people’s values, what people want varies hugely,” Mair said in an interview, noting that Ethic’s approach to sustainable investing could include screening for environmental impact, labor rights, gender and ethnic issues and other factors.
Ethic’s team works with financial advisors and institutions, including foundations and endowments, to create a suite of equities packaged in separately-managed accounts. Advisors’ clients can then invest in a firm-wide product or customize a specific strategy. The firm declined to name any clients, citing compliance concerns.
Mair anticipates future demand from large, nationwide organizations struggling with client retention after generational wealth transfers, as clients leave to seek more customized, sustainable investments.
The latest round of funding will help Ethic scale its technology and service increasing client demands, Mair said.
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