> Posted by Danielle Piskadlo, Manager, Investing in Inclusive Finance, CFI
#Allinforimpact was the hashtag at “Investing for Impact”, a socially responsible investing (SRI) conference in Boston. Maybe not “all” quite yet but certainly “more” investors are going in for impact, as indicated by the growth in attendance at the conference over the years. Investing for Impact was sponsored by socially responsible investors, such as Calvert Investment and Trillium Asset Management, who not only screen potential investee companies in terms of meeting certain environmental, social, and governance (ESG) criteria – but also serve as watchdogs for the sector and advocates for impactful companies.
A Few Top SRI Trends (from the conference)
Allowing Sinners to Repent: Some companies with bad names in the 1970’s such as General Electric and Ford have changed enough internally to now qualify within some investors’ ESG criteria. As one speaker put it, “What kind of church would we be if we didn’t allow sinners to repent?”
Shades of Grey: Tobacco, firearms, and carbon were across the board clear divestments. But the jury was still out on some companies and business models. For instance, Nestlé, which in the 1970’s came under fire for promoting baby formula in developing countries, has since done a lot to accelerate research on diabetes. Peapod, and other grocery delivery services, are making a pitch to be included as impact investments because the energy saved by not storing food, and the associated reduction in food waste, are positive externalities to consider.
Positive Pressure: ESG advocacy continues to happen as shareholders vote proxy rights, as well as through increasing pressure to act socially and responsibly, which is reportedly making a big impact. According to Arjuna Capital, their direct advocacy to nine companies pressured six of them to close the gender pay gap. And according to one panelist, when State Street Global Advisors launched the SPDR SSGA Gender Diversity Index ETF (Ticker: SHE) in March 2016, it sparked a big discussion among the members of the Bank of America C-Suite on their gender composition. Apple has also been pressured to increase diversity at its board and leadership levels and has made some changes – the addition of five women and three persons of color between the board and executive leadership.
Investment Lens Options: If you want to invest with a specific ESG lens, these options now exist. Calvert Investments offers advice on investing for LGBTQ equality and Criterion Institute has been one of the pioneers of “Gender Lens Investing”.
Millennials vs. Boomers: It’s no doubt millennials have become a big part of the impact investing story. As a generation, they are about to inherit trillions of dollars. Health, environment, and education are three top investing priorities for both millennials and boomers – but their priorities in these areas differ. For millennials it is about health access while boomers care more about preventative care. Boomers worry about the long-term quality of education while millennials are concerned about the burden caused by student debt.
ESG Data Improving: Though the level of ESG data remains far below the financial information available about companies, as demand increases for ESG investment options, the available ESG data improves too. One panelist reported the amount of gender data available on investments has increased by 40 percent over the past two years.
Social Impact Bonds: Social impact bonds (SIBs) continue to gain traction among socially responsible investors as a promising model to target social impact and get social initiatives to scale. However, social impact is still hard to measure, making it difficult to set up meaningful performance metrics.
Social Impact in the Financial Inclusion Space
CFI’s work as the secretariat of the Financial Inclusion Equity Council (FIEC) focuses specifically on financial inclusion impact investing, which is one part of the larger socially responsible investing industry. I noticed a few similarities between impact investors in the financial inclusion space and the larger ESG industry. For example, in financial inclusion arena we are beginning to see specific investment lens options for financial inclusion investors (such as MFIs, fintech, or big data), and much debate about the gray-shading of “socialness”, and increasing positive pressure on inclusive finance organizations to demonstrate strong social practices. We hear over and over from Smart Certified financial institutions that one of the benefits of certification is being more attractive to investors. Likewise, social impact bonds, are appearing as a new investment vehicle in the international financial inclusion space.
However, I also picked up on some differences. For one, in the financial inclusion space, there is a big push to improve the data and reporting available to show the impact of investments and not just to tell anecdotal stories of impact. Interestingly, the ESG impact investors at the event reported the opposite – their clients glaze over at the impact data and just want to hear the stories that make them feel good about their investment.
Similarly, many microfinance intuitions started as small purely socially-focused NGOs and there has been a movement over the years toward a more profitable, commercial banking approach. The SRI movement largely believes that large corporate companies should be responsible for improving (or at least not contributing to) the world’s most pressing social problems, even if it hurts their bottom line. There is the belief that large corporates should move more in the direction of NGOs.
Where Do You Put Your Money?
It’s exciting to witness the recent growth and maturation in the broader SRI industry. Certainly “more” are in for impact in the investing world. However, if we want to see responsible investing go mainstream, we “all” need to be in. The majority of people, no matter now socially minded, neglect to adjust our retirement portfolios to be socially focused – even right here at Accion! In fact, a panelist talking about university endowments admitted creating a low carbon investment option for retirement plans at the request of faculty and only a handful of faculty – five, to be exact – took advantage of it. In order for investing to have a meaningful impact, we all need to put our money where our mouth is.
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