Impact investing could be one of the most important social innovations in our lifetime.
It can leverage the massive power of the capital markets to a higher purpose, and solve seemingly impossible problems that governments and public policy haven’t been able to fix.
However, for impact investing to scale with integrity and have its intended transformational impact, impact must be measured credibly by a third party in order for investors to be able to make valid comparisons that drive investment decisions.
Third party verification of impact measurement is also critical to keep impact investing safe. Marketing teams may be tempted to box-tick and greenwash investment opportunities by offering slick marketing in lieu of the transparency innate in clean, solid and measured data.
Enter B Lab’s GIIRS Ratings. GIIRS Ratings are rigorous, comprehensive, and comparable ratings of a company or fund’s social and environmental impact. They are considered the gold standard for funds that manage their portfolio’s impact with the same diligence as their financial performance.
Investors have a lot of comparisons to make when choosing potential investments. For impact investors, the most important comparison to make is between funds which have been vetted by B Lab and funds which haven’t.
B Labs 2017 Best For The World Funds presents 28 best in class funds that are the top performers of the 47 funds rated in the past year by B Lab’s measurement tools, and represent $1.3 billion in assets under management.
Of the 28 funds, 21 are investing in emerging and frontier markets, while seven are investing in companies in developed markets. Their investments range globally from Iowa to India, and across industries from renewable energy to health care. But all of them, and their portfolio companies, have completed a rigorous, third-party validation of their impact, setting the bar for impact investing, and keeping it real.
Grant and Eisenhofer (E&G) has a 20-year history of investor advocacy representing clients in areas such as securities, M&A, corporate governance, asset recovery, appraisal, antitrust, bankruptcy, false claims, and consumer protection litigation.
To give you an idea of how prominent these guys are in the space of investor’s rights, their landmark achievements include a $3.2b shareholder settlement with Tyco in 2008, a $452m settlement with Pfizer in 2015, and a $92m settlement with Olympus Japan in 2015 (in conjunction with two other U.S. law firms and Japanese counsel).
In short, these are the big guys, the elite in corporate governance and responsible investment, who are actively protecting and promoting the rights of institutional investors and public entities.
And now they are entering the realm of ESG.
Grant and Eisenhofer recently announced the launch of a new ESG Institute, a global thought leadership and advocacy group focused on legal considerations surrounding environmental, social and governance issues in institutional investing.
Co-Managing Director Jay Eisenhofer notes that the new ESG Institute will address the increasing dialogue around ESG criteria and objectives within the global institution community.
“ESG investors are looking to make investment decisions that can help tackle social or environmental problems.” – Jay Eisenhofer
Policies that integrate ESG factors express investor values about increasing sustainability, human rights, humane working conditions and corporate governance, while pulling away from nuclear and chemical weapons, carbon emissions, and fossil fuel enterprises.
According to the Global Sustainability Review, there are now $22.89 trillion of assets being professionally managed under ESG investment strategies, an increase of 25 percent since 2014.
“Significant research exists demonstrating that companies with stronger ESG profiles are less exposed to scandal and ultimately deliver better returns for shareholders.” – ESG Institute
Tiedemann Wealth Management Group is an independent wealth advisor with $12b in assets under management. They state that they are “singularly focused on providing high net worth individuals, family offices, trusts, foundations and endowments with customized, objective investment management and wealth planning services.”
Recently they announced their intentions to commit to impact investing by acquiring Threshold Group, which was founded by the Russell family (Russell Investments, Russell stock indices) and has $3.4b in assets under management, with $1.5b specifically targeted on impact investing.
“More and more, clients are insisting their portfolios align with their values, especially as diversified impact portfolios offer returns which are no longer considered concessionary.” – Eric Russell
“We are very excited that the combined firm will offer all of our clients broader resources, a more robust technology platform, and deeper expertise across all service lines.”
Michael Tiedemann, CEO and Chairman of the Board of the combined firm, stated that many of Tiedemann’s clients “have shown interest in impact investing. The addition of Threshold’s expertise in this area to our existing investment platform and comprehensive services will be a welcome addition for our clients today and prospects in the future.”
The combined firm will operate under the Tiedemann Wealth Management brand with approximately $15 billion in assets under advisement. The Russell Investment group will assume an ownership stake in the Tiedemann, but will retain a relationship as a client.
Bloomberg is now the first U.S.- domiciled, corporate retirement plan sponsor (ERISA plan sponsor) to join the Principles for Responsible Investment (PRI).
The PRI is the world’s leading proponent of responsible investment. It is supported by, but not a part of, the UN.
By joining the PRI, Bloomberg promises to incorporate the 6 Principles for Responsible Investment into its investment practices. These principles are to:
- Incorporate ESG issues into investment analysis and decision-making processes.
- Be active owners and incorporate ESG issues into ownership policies and practices.
- Seek appropriate disclosure on ESG issues by the entities in which they invest.
- Promote acceptance and implementation of the principles within the investment industry.
- Work together to enhance effectiveness in implementing the principles
- Report on activities and progress towards implementing the principles.
“This is really exciting – not many companies offer ESG-themed funds, as of yet, to their employees through their corporate retirement plans,” – Cathy Bolz, Head of Global Benefits at Bloomberg L.P.
“By signing we are saying that we think the investment world has matured to the point where organizations like ours can think about integrating ESG issues into their investment policy considerations. The PRI is a great platform for sharing best practices with other companies.”
PRI managing director, Fiona Reynolds added, “we want workers to have a dignified retirement and part of achieving this is to ensure that the funds in which they are invested, and which they rely upon in later years, are taking advantage of using ESG factors to better manage risk and identify new opportunities.”
Investors are seeking ESG investment options at higher rates than financial advisors are offering them.
There are three stubborn myths that may be affecting financial advisors’ perception of ESG.
- Advisors may think their clients don’t care about ESG.
However, a Morgan Stanley study showed that 71% of individual investors are interested in sustainable investing, while more than 60% of advisors have little or no interest.
- Advisors talk about ESG, but no one really does it.
In the US, ESG has experienced a 33% increase in growth over that past two years.
- ESG investing hurts financial performance.
A University of Oxford study found that consistent application of sustainability practices has a positive influence on investment performance.
What can advisors do to get on the ESG bandwagon?
- Determine the right ESG data and software tools to address clients’ needs.
- Adopt an ESG data solution that helps monitor and report on ongoing changes to the ESG scores of the companies.
- Educate clients on why ESG is important even if they haven’t asked for it specifically.