Answers to this and other questions raised at the annual RIA Conference on June 7-11, 2021
At this year’s RIA Conference the S (social) in ESG factors to consider when investing, got as much airtime as the E (environmental) and G (governance). Conference speakers and participants agreed that investors increasingly expect the companies in their portfolios to grow, not just for the sake of growing, but in order to have a positive impact on communities - both people and the planet. But with the barrage of research and data on the impact of investments, how can investors be sure their investments deliver real world outcomes not impact washing?
Oikocredit Canada Support Association (OCSA) Directors Carla Pellegrini and Julie Scott share their reflections on the answer to this and other questions raised at the RIA Conference.
What does mainstream impact investing look like?
Julie: It’s investors expecting that their portfolio companies deliver intentional and measurable impact alongside financial return. Corporate and social agendas are coming together. Rahul Bhardwaj, President and CEO of the Institute of Corporate Directors (ICD), gave one example: companies improving their bottom line by including key voices from under-represented groups, including women, racialized persons, those who identify as LGBTQ2, into leadership positions. Mark Carney, former Governor of the Bank of England, gave another example: carbon-intensive companies investing in their workers and renewable energy to ensure a just transition to a ‘net zero’ economy -- where companies put no more man-made carbon into the atmosphere than they remove from it.
Carla: Sean Gilbert of the Global Impact Investing Network (GIIN) noted that impact is increasingly becoming an aspect of return on capital and soon will no longer be a product type. We’re seeing more and more demand for social, environmental and financial returns on investments. No longer will social and environmental impacts be a nice-to-have; they will be expected alongside financial returns. Rahul Bhardwaj of ICD and Christine Bergeron, CEO of Vancity, agreed that if you can’t make the business case for creating positive impacts, you’re not trying hard enough, and if you can’t make the business case for ESG investing and a stakeholder approach, then you’re doing something fundamentally wrong.
Do co-operatives have a headstart in making a positive contribution in the community?
Julie: Certainly investors affiliated with co-ops at the RIA conference suggested that they are making great strides in contributing to real world outcomes. Diane Young, Senior Portfolio Manager at Addenda, which is owned by The Co-operators, clarified that impact is more than a strategy, it’s a mindset. Christine Bergeronof Vancity suggested that a business is only successful if the community around it is thriving; impact is not the responsibility of a single team rather it’s baked into strategy with senior leadership accountable for results. Marie-Justine Labelle, Head of Responsible Investment at Desjardins Investments, said at Desjardins there is a growing expectation that impact is a way to connect with clients and help them use their portfolio to become agents of change.
Carla: The co-operative model holds community at its core. The seven co-op principles provide the framework whereby the business succeeds only when its members, or its community, succeed. Collaboration, cooperation, open membership and concern for community ensure that co-ops are designed and operated to generate more than just financial returns. It’s no surprise that credit union Vancity is the only Canadian financial institution to have signed onto the UN’s Net Zero Banking Alliance. When community is central to an organization’s strategy, aligning actions with positive impacts becomes a no-brainer.
What can be done about green washing or impact washing?
Julie: Given that investors are becoming increasingly sophisticated and are developing a radar for impact washing, speakers agreed it’s not enough for investment managers to say they look at ESG risks. They have to explain how they are contributing to solutions to systemic problems not just on paper but on the ground. With science and data as the north star, portfolio managers must always clarify what a portfolio is and is not doing for people and the planet.
Carla: The biggest risk to impact investing becoming mainstream is green washing or impact washing. Mainstream financial institutions want to be seen as making “green” or “impact” investments to get onboard with current investor demands, but flashy marketing and ESG lingo do not always translate into actual positive impact. Investors increasingly need to educate themselves and their advisors about the different approaches across the impact investing spectrum (i.e. negative screen vs. impact investment) so they can distinguish a greenwashed product from a green product. Ask the tough questions; understand how impact is being defined, measured and reported on; look at the underlying holdings in addition to the investment approach. As impact investing becomes more mainstream, green washing and impact investing will increasingly be on the radar of the regulators as well which will only provide more assurance to the everyday impact investor.