The ImPact, a new investor network aiming to normalize impact investing among the world’s wealthiest families, tackles public equities, an often overlooked asset class in impact investing, in the second primer in its asset class series.
The report, Public Equity and Impact Investing, explores the diversity and demonstrable track records that make public equity strategies accessible for families as they develop impact investment portfolios. Here are a few highlights:
Screened portfolios. Investors can screen their portfolios according to ethical or environmental, social, and governance (ESG) criteria. This may include screening out certain companies or industries or actively including companies that are “best in class” in terms of their ESG and financial performance. Investors can obtain ESG data and analysis for companies and funds from sources such as Bloomberg, CSRHub, Morningstar, MSCI, Sustainalytics, and Vigeo Eiris.
Solutions-oriented portfolios. Families can invest in public companies whose core products and services address pressing challenges at scale, such as renewable energy providers or low-cost vaccine manufacturers. The universe of public companies and funds focused on specific issues is growing as companies and asset managers are responding to client demand and impact venture-backed firms go public.
The education technology company 2U, for example, went public in 2014 and released its impact report as a public company. Pax Ellevate Global Women’s Index applies a gender lens to its basic ESG analysis while Etho Capital’s Climate Leadership Index ETF aims to address climate change by including only stocks of companies whose carbon emissions are at least 50 percent below their industry’s average.
Shareholder activism. Shareholder engagement is the most direct and powerful way for families to create impact through their public equity holdings by steering companies towards more sustainable practices. According to a 2012 study by Ceres, half of the 230 sustainability-related shareholder resolutions filed by its members in the preceding three years resulted in commitments to action from the targeted companies and more than 75% of those commitments were fully or substantially fulfilled.
What about financial performance? Multiple studies show that companies with a strong sustainability focus financially outperform comparable companies with poor sustainability records.
“This is a clear signal to companies that markets value sustainability,” the report notes. “By investing in funds with an explicit ESG lens, families can intensify this market signal, further incentivizing companies to measure, manage, and optimize their social and environmental performance.”
- Frameworks for impact investing
- Fixed income impact investing
- Public equity impact investing
- Early-stage impact investing
- Real assets impact investing
- Private equity impact investing
Photo by: Luis Llerena