Impact Investing’s Image Problem

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Jul 2014
Global, July, 30 2014 - The notion of making as much money as you can and then turning around and trying to be a saint by giving it away is partly a byproduct of investor doubt that impact investing can provide both competitive performance and have a positive impact, Schueth said.

Steve Schueth, president of First Affirmative Financial Network, offered an analogy that made the usual invest-to-make-money-first-and-then-be-philanthropic-later approach sound something like a Viking raid.

“The notion of approaching investing from the rape, pillage and philanthropy model . . . make as much money as you can, pay little attention to the impact you’re having on the world, and give some of it away at the end of the year to try to solve some of the world’s problems doesn’t work for me and it doesn’t work for the clients who are attracted to what we do,” he said.

Schueth, whose independent investment advisory firm focuses on socially conscious, purpose-driven investing, spoke today at the Impact Investing Conference in Denver hosted by Financial Advisor and Private Wealth magazines.

The notion of making as much money as you can and then turning around and trying to be a saint by giving it away is partly a byproduct of investor doubt that impact investing can provide both competitive performance and have a positive impact, Schueth said. 

“But that’s no longer the case, and changing that perception requires educating investors,” he said, noting that the MSCI KLD 400 Social Index, the granddaddy of sustainable, socially responsible impact public market indexes that was launched in 1990, has over time outperformed the S&P 500 index.

One of the themes running through the various sessions at the all-day event was that impact investing isn’t philanthropy—it’s investing, and that people who devote a part of their portfolio to investing in projects and companies that make the world a better place can expect to make decent returns on their money.

That said, old stereotypes die hard. “There’s a desire for alternative [investing] models, and people want to know if there’s a way to invest in a way that connects to who they are as a person,” said Adam Seitchik, chief investment officer at Arjuna Capital, the sustainable wealth management platform of Baldwin Brothers Inc. “Some advisors will say,’ Well, be careful when you do that kind of thing because you can lose money doing that.’”

Impact investments come in many different flavors running the gamut from addressing climate change and creating more efficient, sustainable food supplies to improving health care in poor nations and reducing foreclosures in inner-city neighborhoods.

And impact investing vehicles range from private equity and private debt to publicly traded companies and new products such as the TriLinc Global Impact Fund. That fund, which debuted last year, is a publicly registered, non-traded limited liability company providing loans and trade finance to small- and medium-sized enterprises, mainly in developing countries.

The fund’s $2,000 minimum investment is open to investors with an annual gross income of at least $70,000 or a liquid net worth of at least $250,000. It offers an annual yield of 8 percent on net asset value, paid monthly.

Fixed-income in the form of loans traditionally has dominated the impact investing space, and many of them pay low single-digit returns. While some investors are fine with that, others aren’t. People looking for more oomph from their impact-type investments can turn to the public markets.

“We’re really excited because the prospect of doing well [from an impact perspective] and finding highly productive, excellent investments in the public space are happening now,” said Chat Reynders, CEO and chairman at Reynders, McVeigh Capital Management, which has a strong background in socially focused investments. “Managements are being more progressive and taking steps to be more sustainable. We look at some of the amazing efficiencies taking place in manufacturing that are lowering carbon emissions.”

Reynders said his firm’s client base has expressed growing interest in impact investing.

“One question being asked by some of the families and individuals we work with is ‘how is my money being directed and what are the impacts my money is having both positive and negative, and how can we do better,’” he said.

“So this isn’t just for the progressive families,” Reynders noted. “The conversation is getting deeper across the entire swath of our wealth management practice. A lot of people think about impact investing as being a niche, but more people are seeing it as a core philosophy.”

Reynders said his firm’s client base has expressed growing interest in impact investing.

“One question being asked by some of the families and individuals we work with is ‘how is my money being directed and what are the impacts my money is having both positive and negative, and how can we do better,’” he said.

“So this isn’t just for the progressive families,” Reynders noted. “The conversation is getting deeper across the entire swath of our wealth management practice. A lot of people think about impact investing as being a niche, but more people are seeing it as a core philosophy.”



Source : Impact Investing
 

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