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[Event Recap] Discussion of the US SIF Report on The Impact of Sustainable and Responsible Investment

Dan Saccardi

On October 5th, Lisa Woll, CEO of US SIF (The Forum for Sustainable and Responsible Investment), led a discussion of the positive impacts of sustainable and responsible investment (SRI) over the last 25 years. Ms. Woll’s presentation, focusing on the following four areas of broad impact, reviewed the findings from the US SIF Foundation’s recent report. One of the report’s primary goals is to provide data to help communicate how impact investing has influenced the investment industry, companies, communities, public policy, and global standards.

Other speakers included Ken Amand, VP and Client Portfolio Manager at Mirova; Kim Gluck, Managing Director at Walden Asset Management; and Justin Conway, VP of Investment Partnerships at Calvert Foundation.

1.  Changing the investment industry

As the prevalence of impact investing has grown, so has its influence and impact on the investing industry. In the US alone, according to the Report on Sustainable, Responsible and Impact Investing Trends 2014, SRI has grown over 75%, from $3.74 to $6.57 trillion from 2012-2014 (the next Trends Report will be released on November 15th):

Sustainable and Responsible Investing in the US (1995-2014)

Notable milestones include:
  • Development of new investment options and services across a wide array of asset classes appealing to both retail and institutional investors
  • A more favorable regulatory environment, including the Department of Labor in 2015 returning to 1994 guidance that made clear that ESG investing  was permissible for ERISA governed pension plans.
  • Proliferation of “mainstream” studies supporting the financial performance of impact investing vs. traditional options (e.g. Morgan Stanley Institute for Sustainable Investing, TIAA, and Envestnet) .
  • Development of ESG rating criteria, alongside traditional fund rating, by Morningstar, MSCI, S&P, and others

2.  Improving companies through engagement

A key tenant of impact investing has been direct engagement with companies by meeting with senior leadership, voting proxies, participating in advocacy campaigns, and, when necessary, filing shareholder resolutions. Ms. Woll enumerated instances where the cumulative effect of these activities has led to meaningful change, including:
  • Leading U.S. food companies’ adoption of responsible sourcing of palm oil
  • Widespread adoption of sexual orientation and/or gender identity principles into non-discrimination policies
  • More competitive board elections and greater board accountability   

3.  Aiding communities and individuals

Community investing options have proliferated, spanning affordable housing, fair consumer lending, microenterprise, place-based investing, and small business development. Despite their diversity, Ms. Woll highlighted three important tenants that all community investments share:
  • Targeting marginalized areas/communities left behind by conventional market activities
  • Enabling explicit social benefits
  • A financial product that can be managed in terms of risk and return.
Community investment’s growing prominence has attracted the attention of high-net-worth individuals and institutional investors with specific geographic priorities.

4.  Influencing public policy & developing supporting organizations

While impact investing continues to be propelled by its own momentum, Ms. Woll outlined the policy priorities that can help lay the supportive foundation for even broader long-term success, including:
  • Disclosure of corporate political contributions 
  • Rulemaking to carry out the Dodd-Frank Act
  • Increased funding for the Community Development Financial Institutions Fund and other community investment initiatives
  • Climate change legislation and regulation,
  • Mandatory ESG disclosure
  • A sustainable investment option for federal employees in the Thrift Savings Plan
Ms. Woll also highlighted some notable policy achievements, chief among them being the Department of Labor’s important ruling in 2015 overturning 2008 issued guidance on ESG in ERISA specified fiduciary duty.  

Finally, Ms. Woll concluded by noting that SRI’s strong tailwinds could be further bolstered by greater education about SRI for client-facing professionals and collaboration on ways to continually develop innovative and effective products and solutions.

Ken Amand, VP and Client Portfolio Manager, Mirova

Mr. Amand  emphasized how Mirova focuses on ESG criteria as a means of finding investment opportunities and mitigating portfolio risk. Because ESG insights are only as valid as the underlying information, he added that there’s a need for better data. Given the data paucity, Mirova has developed a 12-member non-financial team looking exclusively at ESG factors.

Kimberly Gluck, Managing Director, Walden Asset Management

Ms. Gluck noted the transformation from the SRI industry’s early focus on negative screens (e.g., tobacco, alcohol, military, gambling) to identifying broader environmental and social trends and the related impacts (positive and negative) on investment opportunities. She pointed to the move towards fossil fuel-free investing, which now encompasses 15% of all assets Walden manages. And finally, she noted the power of company engagement, citing their collaborative approach resulting in Colgate-Palmolive adopting science-based GHG goals.

Justin Conway, VP of Investment Partnerships, Calvert Foundation

Mr. Conway remarked that community investing can play an important role in meeting SRI needs, particularly as the Divest/Invest movement seeks alternative investment options. And to support the growing momentum behind community investing, he recommended an increasing focus on innovative partnerships between public/private players, markets, and foundations/NGOs to leverage complementary strengths.