Wednesday, September 2, 2020

Impact Investing: What is it? Who does it? Why?

For many majority-owned institutions, the concepts of "monetary gain" and "social good" have long been regarded as mutually exclusive. We see this most directly in the recent attempt by the Labor Department to shut down Environmental, Social and Governance (ESG) investing: “Private employer-sponsored retirement plans are not vehicles for furthering social goals or policy objectives that are not in the financial interest of the plan,” said Secretary of Labor Eugene Scalia. But this ignores the facts: investing has always been used to further social goals.

Claims that it is difficult to determine the worth of "ESG" or "Social Investments" have not prevented majority-owned institutions from using these factors while making decidedly "anti-social" investments. For example, on July 24, 2020, major "investment" bank Goldman Sachs was fined $3.9 billion by the country of Malaysia to settle criminal charges that the bank conducted "a massive scheme to launder billions from one of the country’s investment funds."

What is Impact investing?

"Impact investing" (also cited as social, environmental, social and governance (ESG) investing, or corporate social responsibility (CSR) investing) describes a style of investing combining a desire to maximize financial return with an attempt to maximize social good (social return).

As one report noted, "Impact investing has experienced increased popularity in recent years: A recent Google report found that search volume for impact investing has overtaken that of angel investing in the past decade. Silicon Valley startups and established corporations alike are seeing a surge of impact-driven initiatives, and throwing financial weight behind such projects. There’s also evidence that suggests impact investments frequently outperform those with strictly financial motivations."

In 2006, our statistical and investment analysis found that our thesis about the higher alpha for a portfolio comprised of companies that are top performers within the sector diversity/inclusion were also top performers with respect to investment return.

Who is involved? 

Major institutional investors include:

The United Nations. Via a set of  "Sustainable Development Goals," the UN is seeking to refocus investment attention to non-financial factors. Impact investing looks to factors that aren’t explicitly part of the conventional schools of economic thought. We now know that there are social impacts that cut across all companies, all industries, and that impact a broader community, and you have to account for that within your financial models.

Another major institution in this sector is the Interfaith Center on Corporate Responsibility (ICCR), which "pioneered the use of shareholder advocacy to press companies on environmental, social, and governance issues." The group represents a "coalition of over 300 global institutional investors..with  more than $500 billion in managed assets. Leveraging their equity ownership in some of the world’s largest and most powerful companies, ICCR members regularly engage management to identify and mitigate social and environmental risks resulting from corporate operations and policies."

Impact Investing Tactics: Social and impact investors use four basic tactics to maximize financial return and attempt to maximize social return. These are outlined below.

SCREENING excludes certain securities from investment consideration based on social and/or environmental criteria.

DIVESTING is the act of removing stocks from a portfolio based on mainly ethical, non- financial reasons.

SHAREHOLDER ACTIVISM. Shareholder Activism efforts attempt to positively influence corporate behavior.

POSITIVE IMPACT INVESTING involves making investments in activities and companies believed to have a high and positive social impact.

How to get involved with Impact Investing.

We suggest you visit the following websites:

ICCR: https://www.iccr.org/about-iccr

UN Principles for Responsible Investment: https://www.unpri.org/pri/what-are-the-principles-for-responsible-investment

US Sustainable Development Goals: https://www.un.org/sustainabledevelopment/sustainable-development-goals/: An attempt to address global challenges, including poverty, inequality, climate change, environmental degradation, peace and justice.

Want to learn more about impact investing? Check out our online resources to learn more about putting your money to work in more ways than one.

Impact Investing: https://www.creativeinvest.com/impactinvesting.html
Social Return Anlysis: https://www.creativeinvest.com/socialreturnanalysis.html
Social Return Strategy: https://www.creativeinvest.com/socialreturnstrategy.html
Social Return Tools: https://www.creativeinvest.com/socialreturntools.html