As a quick glance across recent headlines will tell you, Environmental, Social and Governance (ESG) and impact investing strategies are more popular than ever. Some of the world’s largest asset managers, including BlackRock, Goldman Sachs, Bain Capital and more, have recently launched ESG funds and related investing options, signaling an industry-wide shift towards responsible investing.

In April, the Ford Foundation took the spotlight when it announced its $1 billion commitment to impact investing, one of the largest ever commitments to impact by a private foundation. And earlier this month, the UN’s Principles for Responsible Investing (PRI) launched the first due-diligence questionnaire for hedge funds, which was designed to help investors identify managers effectively incorporating ESG factors into their investment process. (For more from this author, see: Inflation & Interest Rates: Have Central Banks Lost the Plot?)

In light of the increasing importance of impact investing in the financial world, the Cayman Alternative Investment Summit (CAIS) hosted a panel on impact investing at the 2017 summit. The panelists each shared their unique approach to impact investing, providing real-world examples to an audience of alternative asset managers and investors. Expert panelists included:

  • Moderator: Tania Carnegie, Head of Impact Ventures at KPMG
  • Abigail Noble, CEO of The ImPact
  • Dipender Saluja, Managing Director at Capricorn Investment Group
  • Chris Duggan, VP Community Development at Dart Enterprises
  • Amanda Pullinger, CEO of 100 Women in Finance

Why Impact Investing?

According to CAIS panelists, there are a number of reasons to consider impact investing, whether you’re driven by the monetary aspect or the social benefits.

In Abigail Noble’s experience, impact investing is an effective way for organizations or individuals to involve the next generation in their financial decisions. As younger generations become more concerned with the social impact of their investments, spearheading initiatives like fossil fuel divestment, they’re more inclined to engage with investing when there’s a social purpose. Noble has worked with the children of America’s wealthiest families, including the Rockefellers and Pritzkers, to invest in impact funds and use their financial influence to bring about positive corporate change.

From a financial standpoint, impact investing can help investors engage in new markets that beat standard returns. For example, Dipender Saluja, Managing Director at Capricorn Investment Group, an investment manager focused on values-based, sustainable investing, has made outsized returns by investing in certain themes in the impact world, including energy, agriculture, transportation and space. His investments are largely targeted towards promoting energy infrastructure in Africa, which allows his firm to take advantage of population growth and the rising demand for energy in the developing world. As he told the panel, “all human development has always happened hand in hand with energy usage.” (For more, see: Investing in a Post-Brexit World: Ideas from CAIS 2017.)

Bridging these two perspectives, Amanda Pullinger, CEO of 100 Women in Finance, noted that impact investing can both generate above average returns and promote gender diversity. For example, she cited a recent study from the Peterson Institute, which found that female leadership in senior executive roles has been tied to a rise in firm profitability. Additionally, a Morningstar study found that mixed-gender fund management teams have consistently outperformed male-only managers, making gender diversity an important factor that investors should be considering.

How Will the Trump Administration Affect Impact Investing?

Overall, CAIS panelists were optimistic about the continued rise of impact investing under Trump’s presidency. Saluja noted that while climate science itself may be under question, the development of climate technology will likely continue, meaning that there is still a lot of opportunity for investors looking in the energy technology space. Despite Trump’s comments on the campaign trail, Saluja believes it’s clear that we’re not going back to coal, and we’re going to continue to find cleaner ways to generate energy.

Noble agreed that impact investing will continue under Trump, suggesting that these investments can fill the gap when government policies are lacking. She said, “family offices are doubling down on impact investing, and if the government isn’t paving the way, they’re going to invest there.”

The most positive of the group, Pullinger noted that Trump’s administration may be beneficial towards encouraging more women towards corporate leadership roles. She predicted that Ivanka Trump will continue to play a large role in policy, which will lead the government to lend greater support to working women.

How Can We Measure Impact Investing Results?

As Chris Duggan noted, in order to drive impact investing even further into the mainstream, the industry needs to prove that there are tangible results. As an executive at DART Enterprises, Duggan knows as well as anyone the importance of having a business case for all the company’s activities. DART is currently collaborating with KPMG to measure the impact of DART’s work on the local economy and workforce in Cayman.

According to Saluja, he’s found it particularly easy to measure results in the energy industry, where there is oftentimes robust reporting. For example, there are many statistics that look at the amount of solar energy installed over a certain period and the amount of people with access to energy, which has helped him justify the social side of his investments. However, as Noble states, it becomes more difficult to measure the "second-tier" of an impact investment, both on the community and the environment.

The Bottom Line

As socially-conscious Millennials come of age and investors seek out new ways to beat standard market returns, impact investing will only continue to grow from here. According to some impact managers, we’ve only begun to scratch the surface of the full potential of impact investing, particularly in the United States. With better research and measurement capability, managers will increasingly see the benefits of an impact strategy both to drive returns and positive social change.

(For more from this author, see: When Politics Drives Markets: CAIS 2017 Global Market Outlook.)

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