Storytelling seems to be all a buzz these days. We’ve always believed that it’s the best way to convey the impact of our work to a broad audience. And although we’re hearing so much about the importance of storytelling, we also find ourselves communicating in shorter and shorter phrases, i.e., twitter hash-tags.
As if the sustainable and responsible investing movement needs another venue for confusing people!?!
A recent social media post caught our attention; it simply asked, ‘could someone please explain the difference to me between impact investing and sustainable and responsible investing?’ This is a messy topic if you’re in our movement and some may disagree with our, albeit simplified, conclusions, but here is how we see the difference (along with some hash-tag translations).
Sustainable and responsible investing (#SRI) and impact investing (#impinv) are both mission and/or values aligned ways of investing primarily focused on creating positive outcomes. Their differences lie in the strategies used to achieve these outcomes.
Sustainable and responsible investors are typically defined by the ‘negative screens’ they integrate. These screens are a small part of the overall strategy and are often overblown by the media and cynics. Modern sustainable and responsible investors are using a combination of three strategies to create portfolios and positive outcomes:
- Environmental, social and governance (#ESG) analysis in addition to financial analysis. This is used to create a more complete picture of a company and identify best (and worst) practices within an industry to measure peers against one another.
- Shareowner engagement: By using proxy votes, shareowner resolutions, and corporate engagement, investors can encourage better corporate social responsibility (#CSR)
- Community investing: Investments are made to alleviate poverty and other community problems typically through pooled-loan funds.
Impact investors tend to be defined by the capital investments they make to alleviate or promote a particular social cause, such as job creation, renewable energy or affordable housing. In order to achieve their goals, they often choose to invest directly in such things as non-profits, private equities or loan funds.
Impact investing is finally emerging as a trend amongst institutional investors, who are integrating these strategies as a small portion of their overall portfolio. Some have found that their impact is further enhanced by also implementing some of the sustainable and responsible strategies listed above. Sustainable and responsible investors may find that they can have more impact, too, by exploring opportunities to invest locally or in mutual funds and ETFs with a specific mission, should it make sense within their portfolio.
Thankfully, some very good resources exist on this topic. Take Brian Kaminer’s new on-line Money & Impact Investing Directory, which is a must-read resource for anyone interested in this space.
Regardless of how you define yourself, investors integrating mission into portfolios are part of the same family tree and there is opportunity to learn from each other and to generate many more positive outcomes. As always, feel free to contact us for further discussion on this topic.
Investment advisory services and securities offered through KMS Financial Services, Inc. KMS is a SEC Registered Investment Advisor, FINRA Registered Broker/Dealer, and member SIPC.