Sonya explains ESG, SRI, and Impact Investing- each in under a minute, on captioned video.Read More
I'm excited to share with you a paper I co-authored on the racial disparities in staffs and boards of SRI mutual funds. Socially responsible funds pursue positive social and environmental impact through both investment selection and shareholder engagement. Because people of color are often affected first and worst by the issues SRI funds are trying to improve, it would behoove the industry to have people of color in decision-making positions at these firms, at least in an amount representative of the US population. (Although I'm making the business case here, but I don't believe we need a business case to treat people equitably and create systems that are more just.)
Data on the racial and gender makeup of firms is not typically publicly disclosed, so my colleagues and I gathered data to see where we stand right now. The findings are detailed in the paper, both in summary charts, and detailed bullet points. Some of my thoughts on our findings are:
I'm grateful to work in a part of financial services that is willing to talk about race. For the most part, companies we contacted were willing to participate in this survey, and some of them have already been receptive to engaging in discussion around the findings.
The findings are a stark reminder that firms run by white people are not racially representative of the United States population.
We have a lot of work to do to become an industry that is actively welcoming and inclusive of people of color.
I hope you'll read the paper and give it some thought. Our goal is to raise awareness of the disparities and also open the door to public disclosure, more discussion, and actions in service of representation, inclusion, and equity.
We will be discussing the paper in detail on the Racial Justice Investing (RJI) call on February 6, 2019 2PM Eastern, 11AM Pacific. Click to request to join RJI and the call.
We don't pretend to have all of the answers of what to do next. I welcome your thoughts and conversations. If you want to learn more about the topics the paper covers, we've listed a selection of resources at the end of the paper.
One of the benefits of using impact investing and ESG strategies with clients is that it allows clients to connect with their investments on more than just financial considerations. I wonder though, if the appreciation of knowing what you own is reflective of a larger trend. Has the move toward indexing led us to lose sight of what investing really is?Read More
Last week I went to the Total Impact Conference in Boston and noticed the same themes kept popping up in conversation, both on and off the stage. For photos from and highlights of event, click here.
1. How do we effectively measure impact?
Although this theme is one I've seen before, the discussion feels more mature now. There is less talk about whether to measure impact and more talk about how to do it effectively. The “how” continues to be challenging, both in public and private investments. Best practices are focusing on materiality, and looking at impact holistically to consider the various communities each investment affects and what positive impact looks like to those communities.
What I'm thinking about: Are we measuring impact so we can report it to the client to demonstrate our value? Or are we measuring impact to improve our own investing processes?
2. Why are ESG ratings so confusing?
There are so many companies offering ESG equity ratings right now. Since each company measures different aspects of a business and uses different analytics, the same investment can receive a wide variety of ESG scores and rankings.
What I'm thinking about 1: Portfolio and investment managers must understand what rankings are based on and they mustn’t take the grades at face value.
What I’m thinking about 2: How does each firm find the data and analysis that's the best fit for their business?
3. How do we reconcile the drive towards lower costs with the desire for more impact?
In the public equity mutual fund and ETF space, this year has seen a dramatic race to reduce fund management fees, including all the way to zero. In the ESG space, Vanguard recently rolled out two low cost ETFs. But does this reduction in management fees inhibit the ability for effective shareholder engagement, the main leverage place for driving change in public companies?
What I'm thinking about 1: Can an effective ESG strategy fit into the confines of an index fund?
What I'm thinking about 2: How can champions of shareholder engagement encourage large index owners, Like Vanguard, State Street, BlackRock to join in engagements as both signatories and with funding and resources?
4. Are ESG and Impact Investing products to monetize or a part of firm culture?
For companies, both large and small, that are adding ESG and/ or Impact Investing to their platform, there is often a debate of whether it should be in the form of silo-ed products to monetize (like an ESG mutual fund), or if it it should be a philosophy (or at least data) that will be widely incorporated throughout the organization.
What I'm thinking about: Although most of the public talk on this topic is about how large firms view this issue, I see this same theme come up with small and mid size RIAs regularly as well. Adding an ESG, SRI, or Impact product can presents challenges if the whole firm is not enthusiastically on board with the new business line. Making sure everyone is on the same page is always a good idea, and can increase sales and adoption of a new product or service.
Have you noticed any other themes? Send me a note and let me know!