Impact Investing Journal




Second Quarter 2019: Defining Impact

For this entry, we will be laying the groundwork for future entries by providing a few pertinent definitions related to Impact Investing.


Key terms to be familiar with when discussing Impact Investing

Impact

Impact itself is a broad term. In short, when we talk about Impact as a whole, we are talking about making a positive difference in the world with an investment of time, energy, or capital with the expressed interest of having a particular positive outcome.  Impact can be considered to be Indirect Impact or Deep Impact.
 

Indirect Impact Investments

ESG and SRI investments

Indirect Impact concerns investments as we traditionally think of them--that is, investing capital in ways that support an investor’s goals. These goals are often a combination of value-oriented goals with more traditional financial goals. This type of investment can be done with a variety of asset types. With these investments, we encounter two other terms: Environmental, Social, and Governance (ESG) and Sustainable and Responsible Investing* (SRI) investments.  While these terms are commonly used interchangeably, they are not one in the same.  In brief, as the College for Financial Planning  states in its Chartered SRI Counselor Curriculum (CSRIC) (in which Cort and I are currently enrolled) “ESG analysis is the underlying factor in virtually all SRI strategies.” In other words, ESG is a set of criteria that serve as the first line of defense when evaluating a particular impact-oriented investment.  These three factors (Environmental, Social, and Governance) are used in most instances as a screen that most SRI investments must meet first. In future posts, we will delve more deeply into these nuances.  For now, it should serve to simply be aware of this distinction. Essentially, these terms act as standards of evaluation for different investments, whether a Stock, a Bond, or a Fund, and provide a framework for the Impact investor to use when selecting a particular investment.

Deep Impact Investments

Deep Impact (or Direct Impact) involves a direct connection. It can involve hands-on action. Perhaps it is a sustained commitment of time to an organization that you care about. Perhaps it is sitting on a local board or organizing a food drive. As a practice, we are more and more aware of this type of commitment and are always looking for new ways to contribute to the causes that we and our clients care about. Deep Impact can also be a direct financial contribution to an organization or entity that supports progress aligned with the investor’s values. In these ways, the concern is about supporting a cause that the investor feels compelled to support because of their belief that what they do can help to make the world a better place.  In other words, with these types of investments, “returns” are often irrelevant, secondary, and many times intangible. In general, the investor who is investing in this manor accepts these potential outcomes.
 

Impact Investing

Impact Investing itself is a relatively new term. In fact, the term wasn’t made popular until 2006 when the Rockefeller Foundation unveiled a major “impact investing” approach. Since that time, Impact Investing has become relevant on a global scale. In short, Impact Investors are those who are conscious of the social and/or environmental outcomes of the money that they invest. In particular, this is the type of investing that we, as a team, are more and more concerned with. We believe that investments in this category offer an opportunity to meet an ever-increasing client need—to not only meet financial goals, but also invest in a way that is in line with their values. We believe that investments in companies and organizations that are dedicated to the environment, have humane operations, and that contribute to the well-being of us all, not only have financial advantages, but also meet the larger goal of making our world a better place.  These are investments that have the potential to meet a Triple Bottom Line (TBL) which Investopedia defines as “…a framework or theory that recommends that companies commit to focus on social and environmental concerns just as they do on profits.” The College for Financial Planning states that TBL or 3BL “uses an accounting framework to measure the degree by which a company’s social responsibility, its economic value, and its impact on the environment work together to add greater business value.”  This is the target that we use when considering our own Impact Investments.

For clients who are receptive and interested in these ideas, we are excited about our Jester Group Impact Strategy. For years the traditional rebuttal to Impact, ESG, and SRI investments has been that their returns suffer. There is a growing body of research and data that disprove this theory. As trends point to more and more assets being invested in this way, it will only help these returns while moving the needle towards an economy that works to make our world a cleaner and healthier environment for all of its inhabitants.

We look forward to discussing these ideas with you in the near future. Be on the lookout for meetings, events, and literature along these lines from our team. In the meantime, please don’t hesitate to reach out with any questions or findings of your own.


Always in gratitude,

David Jester 
Invest in good.



*It is important to note that until recently, SRI was generally an acronym for Socially Responsible Investing. According to the College for Financial Planning “since this term was generally used as a screen for social criteria only, a more encompassing term was needed. As such, the most widely accepted definition of SRI is now “sustainable and responsible investing.”





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1.  First Quarter 2019

BAIRD HIGHLIGHTS