Investing with Impact
Make a difference in the world while investing in your future.
What is Impact Investing
Every client at Impact Capital Strategies (ICS) has a unique set of priorities to consider when making investment decisions. In the past, those who wanted to align their investment with their social or environmental values had far fewer choices, most of them poor. That has changed with the rise of socially responsible investing, ESG, and impact investing—all of which let investors leverage the power of their investments for social good, while boosting the performance of their portfolios.
At ICS, we specialize in several investment strategies that allow our clients to make a meaningful difference in the world while investing in their financial future.
- Socially Responsible Investing (SRI): SRI strategies have been driven by investors' wishes to avoid companies that participate in activities that they feel are unethical (such as traditional "sin stocks": alcohol, tobacco and weapons manufacturing), and to increase their investment in companies that have a positive social impact. In response to this demand, many funds have been developed with various portfolio screens, including carbon-free, "best-in-class," and gender-focused funds.
- ESG Investing is a newer investment strategy wherein investors examine a company's environmental, social and governance practices to evaluate each investment decision. Our clients increasingly demand that ESG factors, such as climate change, human rights, biodiversity, and corporate governance, are factored into their portfolios. This has prompted many companies to proactively improve their leadership in environmental, social and governance criteria. From an investment perspective, ESG factors, particularly those related to climate change, are potentially important drivers of portfolio risk and return. We have found that companies that score highly in their ESG ratings generally are outperforming their lower-ranked peers.
- Impact Investing is an investment strategy that directs assets toward products, services and companies that generate positive social and environmental impact. Impact investing focuses on both for-profit companies that have an explicit intent to do well by doing good, as evidenced by their business plan or business model, and enterprising non-profits with revenue and earned income streams. In doing so, there is the potential to create meaningful value and sustained change for both investors and for society.
Real Talk: How Will My Portfolio Perform?
Let's put one longstanding misconception to rest: for a well-managed portfolio, performance shouldn't suffer because of the inclusion of social and sustainable factors. In fact, most data shows that responsible investment strategies perform competitively on a risk-adjusted basis.
- One study, for example, published in the Journal of Investing, has shown that the social or sustainability parameters are not major performance drivers, positive or negative.
- These findings have led FSG Social Impact Advisors to write in their report, A Brief Guide to the Law of Mission Investing for U.S. Foundations, that "there is considerable and growing evidence that taking social and environmental considerations into account may actually increase investment returns for the long-term investor. If so, then considering such factors would not conflict with profit maximization."
- The bottom line: the real drivers of portfolio performance are the same as for any investment portfolio—diversification and risk management practices.
Data from Report on US Sustainable, Responsible and Impact Investing Trends 2016; SRI assets represent nearly 22% of $40.3 trillion in assets under professional management tracked by Cerulli Associates at year-end 2015.
- 1. Bauer, Rob, Kees Koedijk, and Roger Otten. "International evidence on ethical mutual fund performance and investment style." Journal of Banking and Finance, 2005. Derwall, Jeroen, Kees Koedijk and Jenke Ter Horst. "A Tale of Values-Driven and Profit-Seeking Social Investors." Journal of Banking and Finance, 2011.
- 2. Kurtz, Lloyd, and Dan diBartolomeo. "The Long-Term Performance of a Social Investment Universe." Journal of Investing, 2011.
- FSG Social Impact Advisors also notes that "It is commonly assumed that fiduciary responsibility under federal and state law requires a foundation's board to maximize the investment return on the foundation's assets." However, donor intent, federal tax law and fiduciary duty as stipulated in state laws together determine a foundation's obligation to maximize financial returns.
Sustainable investing focuses on companies that demonstrate adherence to environmental, social and corporate governance principles, among other values. There is no assurance that social impact investing can be an effective strategy under all market conditions. Different investment styles tend to shift in and out of favor. In addition, a strategy's social policy could cause it to forgo opportunities to gain exposure to certain industries, companies, sectors or regions of the economy which could cause it to underperform similar portfolios that do not have a social policy.
Senior Registered Branch Administrator