Rebel With a Cause: The Case for Impact Investing


Randy Kaufman, W&GF Senior Advisor and Senior Vice President at EMM, a wealth management firm, presents a compelling case for impact investing. 

If you believe, as we do, that impact investing -- the deployment of capital to achieve social good in tandem with financial return -- makes good sense, then you have already probably have begun to incorporate a values-based approach to investing in your own portfolio.  That’s a good thing since increasingly there is much evidence that social impact investing can be implemented without sacrificing attractive financial returns.

Yet for many investors who remain skeptical about the financial efficacy of impact investing, we invite to suspend your disbelief and hear our prudent “rebelling with a cause” as we advocate for it.  So this piece is for detractors and fence sitters. We invite you to our soap box!   


First, let us put the potentially confounding issue of labels aside. All investment have a social impact – positive, negative, neutral or some combination thereof.  Accordingly, all investing is impact investing.  As such, impact Investing covers the entire predecessor categories, namely Socially Responsible Investing (SRI), Environmental Social & Governance (ESG), Mission-Related Investing (MRI) and Values-Based investing (VBI), and encompasses public and private securities offered through various fund structures and in individual deal transactions.


Nonetheless, for the sake of enhanced clarity, we will use the definition from the Global Impact Investing Network (GIIN):

Impact investments are investments made into companies, organizations, and funds with the intention to generate social and environmental impact alongside a financial return. Impact investments can be made in both emerging and developed markets, and target a range of returns from below market-to-market rate, depending upon the circumstances.

The growing impact investment market provides capital to support solutions to the world's most pressing challenges in sectors such as sustainable agriculture, affordable housing, affordable and accessible healthcare, clean technology, and financial services. (1)

Following these tenets, we can agree that impact investing is not an asset class and is not limited to private deals. Impact investments are more prevalent in long-only equity, fixed income and private equity, but we can find them across the entire asset class spectrum.

While we cannot address the full range of debates on impact investing, we will at least posit the following:

  1. Impact investing is here to stay and it’s imprudent to ignore it.
  2. An array of impact investing strategies achieve financial returns that are on par with or surpass traditional investments within a similar asset class
  3. Investing a portfolio without a view about its social impact (i.e., without expressing a personal value system or institutional mission) is a wasted opportunity and a sub-optimization of capital deployment.

May the Force be With You

Impact investing has been around for hundreds of years, albeit under a different label, but it is finally approaching mainstream status. According to one study by The Forum for Sustainable and Responsible Investment (US SIF), the total US domiciled assets using SRI strategies increased 76% between 2012 and 2014, from $3.74 trillion to $6.57 trillion. (2) Since 1995, when SIF first started tracking these trends, the SRI universe has grown ten-fold.  A 2014 survey of high net worth individuals by RBC Wealth Management and Capgemini indicated that achieving social impact is important to 92% of the respondents—and investment was ranked as the leading mechanism for meeting these goals. (3) And according to Net Impact, 67% of Millennials also believe that their investment decisions are a way to express their social, political or environmental values. (4)

As the demand has grown, so has the supply: the number of impact investment funds tracked by Cambridge Associates has tripled since 2008. (5) In addition, public efforts are underway to develop ways to measure impact, such as the formation of the Sustainability Accounting Standards Board (SASB) which determines materiality thresholds for environmental, social and governance (ESG) factors to qualify as an impact investment. Impact investing is becoming more common with institutional investors as well. For instance, the California State Public Employee Retirement System (CALPERS) recently issued a statement saying it would evaluate all managers using ESG criteria.

Impact investors are generally motivated by the ability to leverage their asset ownership to influence behavior of enterprises, help catalyze solutions to key challenges and align their investments with their values. In Europe, which has twice as many assets in sustainable investments than the US, institutional investors have cited sustainable investing as part of their fiduciary responsibility. (6)

The proliferation of this practice certainly bodes well for our respective futures. Hopefully, as a result of the dollars moving into the space, workplace best practices, environmental consciousness and social causes will play a much larger role within the investment community and will likely benefit from the influx of funding. But that is not the only reason it’s worth adopting.  

Myth Busters:  Debunking the Argument of Subpar Returns

As professionals in this industry, one of our jobs is to find the best managers we can for our clients and to customize their portfolios based on their personal objectives. We have seen an ever-growing number of managers that integrate impact themes that align with clients’ social objectives. In the past few years, major institutional investment managers have entered this field, BlackRock, Bain, Zurich and AXA Group among them. And yes, our due diligence team will tell you that finding top quality managers is not easy to begin with while finding top quality impact managers is even more complex. But we believe the flood of talent entering the impact space places the goal of “doing well and doing good” in closer reach.

As with any investment strategy, excellent performance is neither easy to find nor guaranteed. Research is, as research tends to be, all over the place. But some research does suggest that positive screening does not harm returns and can actually bolster them. TIAA-CREF compared five US equity SRI indexes (that had performance histories of ten years or more) with the Russell 3000 and S&P 500 indexes. (7) It concluded that although there was variability in performance over the short-term, over the long-term "SRI indexes achieved...performance similar to broad market benchmarks while pursuing social goals.” (8)

It should also be noted that the S&P 500 Environmental & Socially Responsible Total Return Index has outpaced its parent index (the S&P 500) by 0.3% nearly since its inception in 2010.


Some believe the outperformance of impact investing and similar forms of investing are due to the fact that use of impact data can help screen companies in a positive way to find those with less risk and greater shareholder value. After all, isn’t it likely that in the long term, a company with good management that considers environmental risks or embraces diversity would have a stronger bottom line than one who ignores those issues?

A recent study by Breckenridge Capital found that ESG integration enhances its efforts to mitigate and appropriately price risk and can help them achieve their goals of preserving capital, building sustainable sources of income and seeking to opportunistically improve total return. They go on to say that, “The advantages of ESG analysis also include its low positive correlation with credit agency ratings and alignment with the growing importance of ESG management and sustainability in corporate strategy.” (9)

Would You Care for a Side of Cognitive Dissonance with Your Grant-Making?

As students of behavioral finance, we have identified a number of behaviors over the years, including an embarrassing number of our own, that make no sense in a modern world. But we have seen no behavior more irrational than people who willingly grant money away, accepting a guaranteed negative 100% (pre-tax) return, but who refuse to make impact investments because they are afraid of achieving below-market returns.   

If you care about a goal, the left hand and the right hand (and yes, the heart too) should be aligned to make that goal a reality. A classic example is the Foundation set up to foster a cleaner environment. Foundations are required to grant 5% of their assets a year. The remaining 95% stays invested in order to enable the Foundation to operate and continue to make grants well into the future, often in perpetuity. How ironic, or dare we say irrational,  is it to be granting 5% to create a better environment while investing the foundation corpus (the 95%) in companies that actively pollute?

Why not take those same investment dollars and invest in companies (renewable infrastructure, clean transportation, smart energy management, energy efficiency in buildings to name a few) that might help solve environmental problems and create a market-based return? The Rockefeller Brothers Fund (RBF) is a prime example of a foundation that has granted large amounts of money to environmental causes and embraced impact investing for the remaining 95% of assets, despite the fact that it was started using the funds of John D. Rockefeller’s Standard Oil. In 2014, RBF agreed to four guiding principles for its investments, which include divesting from fossil fuels, investing with an ESG lens and investing for “significant, measurable impact.” (10)

Before We Step Down From this Soap Box

We ask each of you who cares about social good or the environment to ponder the questions and opportunities we’ve outlined here.  If you care about certain causes, why not have your investment portfolio working toward that goal? If you feel that to do so would jeopardize your investment returns, we encourage you to call us or explore some of the studies and papers we’ve mentioned here to evaluate whether that is a feeling supported by the facts.

Should you decide to join us on this enlightening journey, be prepared: Like all investing, it’s tricky and nuanced.  But we’ve seen from so many who have joined the fray that it’s also eye-opening, uplifting and very rewarding.  And you might just achieve the nirvana of growing your wealth while truly helping to make the earth and its people better off.

The ideas and opinions set forth in this article are those of the author and do not necessarily reflect EMM’s opinions, market outlook and/or investment approach.  Financial benchmarks shown are provided for illustrative purposes only, and reflect reinvestment of income, dividends, and other earnings. They do not reflect the deduction of advisory fees.  Indexes are unmanaged and investors cannot invest directly in an index.  Nothing herein should be construed as investment, tax, estate planning or other type of advice.


Works Cited:

1: “What is Impact Investing?” Global Impact Investing Network. 29 Sept. 2016. Web.

2.  Jackson, Rebecca. "Investing With Your Values.” Greenvestment Resource Center. 25 March 2015. Web.  

3. Burckart, William. “Bringing Impact Investing Down to Earth: Insights for Making Sense, Managing Outcomes and Meeting Client Demand.” Money Management Institute. June 2015.

4. Kadlec, Dan. “Leave a Financial Legacy? Boomers and Millennials Slug It Out.” Time Money. 20 June 2014. Web.

5.  Mitchell, Tom. “Understanding the World of Impact Investing.” 25 August 2016. Web.

6. “Global Sustainable Investment Review.” Global Sustainable Investment Alliance. 2014

7. Farran, Nina and McCabe, John. “Impact Investing for Trustees.” 27 May 2015. Web.

8. Jackson, Rebecca. "Investing With Your Values.” Greenvestment Resource Center. 25 March 2015. Web. 

9. “ESG Integration in Corporate Fixed Income.” Breckinridge Capital Advisors. January 2015

10. “A Case Study in Impact Investing.” Rockefeller Brothers Fund. September 2016