Insights on Impact Investing from the US SIF Conference
Just how big is the socially responsible investing industry? One powerful example can be found in the development of the Principles for Responsible Investment (PRI) whose signatories – with assets over $30 trillion – are now estimated to represent 20 percent of the estimated total value of global capital markets.
This growing influence of SRI was a major theme at US SIF: The Forum for Sustainable and Responsible Investment throughout its second annual conference May 2-4 in Washington, D.C. Sustainable Investing in Action convened more than 300 leaders in the nonprofit, private sector and government sectors who are “interested in coming together and engaging on the broad span of issues and trends that the sustainable and responsible investment industry confronts in its work on a daily basis” said Lisa Woll, CEO of US SIF and the US SIF Foundation.
With the help of stakeholders including business, government and civil society, sustainable and responsible investors are changing the investment industry by challenging and shifting ‘traditional’ notions of investment practices, and their influence is multi-faceted. By helping to advance the conversation around the inclusion of ESG (environmental, social and governance) considerations in investment decisions, they are working to dispel the belief that financial returns must come at the detriment of environmental and social benefits. By demanding these investment considerations, both institutions and individual investors have catalyzed new investment options and services across a wide variety of asset classes, many of which help address serious environmental and social challenges but which also perform competitively.
In addition, these investors have helped create SRI indices, as well as a suite of standard-setting organizations such as the Carbon Disclosure Project, CERES, Council of Institutional Investors, Global Reporting Initiative, Investor Environmental Health Network, UNEP –FI, and US SIF and other regional and national sustainable investment forums.
Additional SRI initiatives have emerged as a result of the growth of the sustainable investing field and the mainstreaming of ESG integration – such as program, and mission-related investing campaigns by foundations and impact investments by institutions and individuals.
The conference featured a concurrent panel titled “Foundations, Mission and Alternative Investment” to expound on the trend of institutional investors who are increasingly seeking to bridge the gap between their investment objectives and mission objectives. Many of these institutions are exploring partnerships with alternative investment funds that can deliver high environmental and social impact as well as investment returns. The panel brought together several principals from fund-investor partnerships to discuss how they work together and the various impacts they have achieved. Speakers included:
Laurence Band, co-founder of the Sustainable Resource Fund
Dana Lanza, CEO of Confluence Philanthropy
H. Jeffrey Leonard, CEO and co-founder of Global Environment Fund
Candace Smith, COO and Managing Director of MicroVest
The moderator was Martin Whittaker, managing director of Sonen Capital LLC
A large part of the discussion focused on the importance of, and need to educate foundations and investment advisors about impact investing. The panelists discussed how one of the main barriers to getting more foundations involved is that a lot of investment advisors are not educating their clients. Dana Lanza believes that getting more capital from foundations will largely be a direct result of more education, “once we do this, money will flow, especially with the next generation foundation trustees who don’t want to be held responsible for the way we’re headed” Lanza said. And both foundation and investment advisors also need to recognize that investing isn’t just about the risk/return axis, but about looking at risk, return and impact, and ensuring that there is a balance of each of these factors incorporated into their investment allocations.
Michael Lent, CIO of Veris Wealth Partners, who attended this panel, believes the consultant community is one of the biggest obstacles to getting more foundations to invest in “impact. “We need to do a lot more to educate foundations because client demand really is what is going to continue to generate momentum in this space – not many consultants seem to be taking the initiative on their own,” said Lent.
A segment of the panel discussion also focused on how to more effectively engage emerging young trustees looking for new ways to invest for impact. Confluence Philanthropy actually runs a fellowship program for these individuals who are of the mind that there is no purpose in having a lot of wealth if there is no hope for a sustainable future, “however, the archetypes and peer pressure factors are different for every individual and sometimes there are a lot of rules in place that keep next generation investors from taking the impact road” Lanza said. She also commented that these investors aren’t doing a lot of joint investing, and that the impact sector is in need of more multi-impact-themed investments in different asset classes. “Product innovation is the next step with this space that can be attractive to investors.”
And of course, as tends to be the case, much of the conversation centered around finance-first and mission-first investment strategies. Lanza noted that whether investors are prioritizing impact or returns depends largely on who is in the room, “you know the saying; if you know one foundation, you know one foundation.” Larry Band is taking the approach of developing an investment product that he can market based on financial returns so that his fund can pitch to the widest possible audience, “it’s almost a game with what to lead with (financial-first or mission-first), but 90 percent of the conversations come back to financial returns” said Band, “I think it’s clear that we need more investment products with impact and competitive returns.”
The panelists also highlighted some of the biggest focus areas for impact investing (both challenges and opportunities):
Educating gatekeepers and others that advise clients
Focusing on opportunities to invest in business models that are examining better ways to manage renewable resources
Investing in value chains
Investing in emerging opportunities abroad, like clean energy access in India
The need for more liquidity
The need for more “market to market”/secondary market investment opportunities
The need for more investment clubs for investors
The need for more focus groups for foundations as they create their investing objectives in the impact space (more and more foundations see themselves as a part of these finance discussions, and several foundations are actually working to create funds)
Leonard, with Global Environment Fund, ultimately believes that impact investing can sell, but that “there’s a lot of schizophrenia going on. For an investor, trying to clarify what your values are is difficult in a crazy world. It’s scary because you have to have the conversation with yourself, and potentially other, more conservative family members, but we have to have these conversations and do this kind of investing, as individuals and institutions, otherwise we have no future.”
In addition to the session on impact investing, there were close to a dozen other workshops and talks spanning from the limitations of financial reform to our current global and domestic economic situation. And, as Lisa Woll commented, “this wide range of topics discussed at the conference made even more evident that the sustainable investment industry needs to use all the tools at its disposal to drive responses to a range of significant issues facing the country and the world.”