By Jennifer Kenning, CEO and co-founder Align Impact, Patience Marime-Ball, CEO and founder Women of the World Endowment, and Rehana Nathoo, CEO and founder Spectrum Impact
Three leaders in impact investing offered their perspectives on the imperatives for ESG investing strategies for family offices and RIAs during a recent Institutional Investor roundtable, as well as how financial advisors should think about creating ESG strategies that meet their clients where they are. The bottom line? An ESG strategy is imperative to manage risk, but it is also an invaluable framework for advisors and investors seeking intersectional strategies.
The following are edited excerpts from the conversation.
Investors in the impact space have audacious goals – solving the major problems of our time, from racial inequality to climate impacts to gender discrimination. To get there, advisors need to speak the same language as their clients. This means approaching impact investing as an opportunity, to layer creative investment strategies on top of impact goals.
Rehana Nathoo: Impact investing strategies are still investment paradigms. These are still investment strategies. We are talking about investment capital deployed for returns.
The opportunity is to find an impact product in every asset class you want to be in. Can we find it in a really compelling way? Most clients, at least that we found, are thinking in terms of outcomes (such as solving gender inequality, climate impacts or racial inequality).
That is an opportunity to take the outcome, and layer on top of that really thoughtful, rigorous investment advice. The real opportunity here is connecting a really, really audacious goal, with a very, very practical plan. Impact investing becomes devising an investment strategy just like anything else.
Today, the ESG of investing (Environment, Social and Governance) overlap significantly; in particular, the E and the S are merging, as the importance of climate interventions are made more compelling.
Jennifer Kenning: When you’re talking to clients, you want to actually start to dig in: What do they mean by E? What are the types of things they care about from a climate and environmental perspective? What about S? Some clients may focus on E and G only, or S and G only. There’s no right or wrong.
But today, some social-leading investors are starting to say, “Hey, wait a minute, I’ve got to factor in the environment, because if we don’t have a planet to live on in 20, 30, 40 50 years, what does it matter what I am doing around social issues?”
If you are an E investor, you are starting to see the blurred line, of there is actually environmental justice that overlaps with social justice. What we are seeing is a perfect storm of the issues coming together, and then us as a society coming together to drive solutions that really work for everyone and the planet.
Data from non-traditional sources is being used to drive new investable opportunities in impact, as well as develop intersectional strategies. Intersectional strategies can also be used to draw in more investors.
Patience Marime-Ball: In the case of gender focused impact, to date, because data on women has mostly been available on women in leadership, you’re going to see a lot equity products. But we’re beginning to see growth, especially in Europe, of fixed-income products. Here in the U.S., that opportunity is emerging, as interest grows.
We’re seeing a deepening of data collection beyond just leadership, expanding to areas like pay equity, and workplace policies. And these are important because workplace policies are not just for women; they impact everybody. And that’s where you see data traditionally aggregated for women become useful for other impact areas, including diversity, equity and inclusion.
You can also use data that has been aggregated over decades from non-traditional sources, even non-profits, to help build intersectional products. With an intersectional strategy, you can give an asset holder who is first interested in climate a way to be interested in climate as it relates to social justice.
The open-mindedness by Wall Street, to find data in places where they’ve not traditionally looked for data, is a really interesting frontier in terms of the potential for product and strategy development.
Impact strategies are no longer considered a “nice to have.” Viewed through the prism of risk mitigation, an impact lens is an investment imperative.
Rehana: There is not a product, a company or investment that does not have to take people and planet into account, so a really effective impact strategy is a risk management strategy. It is also the smart thing to do.
With impact, maybe there’s an opportunity to think about what fossil fuels are doing not just to the planet, but also your portfolio. For us, impact is risk mitigation, and everything else – the benefits to society and the planet – is the cherry on top.
Patience: Impact investing is downside risk management, but it also offers differentiated alpha pick-up. If you’re looking for those places where there might be opportunities for strong returns, there are a host of impact strategies that can offer that.
Jenn: Impact investing is deeply personal. It isn’t something where you can give them a model portfolio and think that’s going to work for everyone. Investors are asking to get to know advisors on a much deeper level and go on the journey together. The trick for advisors is to be able to meet each client where they are at on their own impact journey, whether that’s becoming an impact expert yourself or bringing in outside experts so you can continue to give clients the options and support they need.
That said, in the future, there won’t be impact investing; it will just be investing. You’ve got Millennials and Gen Zers who look at the world very differently. And they’re going to have a different approach not just to business, but to how the world operates.