How do you really know you’re investing in an eco-friendly, gender-diverse stock?
“Impact investing” was coined by The Rockefeller Foundation in 2007 describe “investments made with the intention of generating both financial return and social or environmental impact”.
Ten years later, more than a quarter of money under professional management is invested “sustainably” according to Morgan Stanley.
But as desire grows among investors to “do good” — so too does an expectation of greater detail about the companies “impact” fund managers are investing in.
Up to $630 billion of managed assets in Australia employ some type of environmental, social or governance filter to avoid unethical investments.
But so-called “impact investors” expect more.
They want to be sure they’re investing in “projects or funds with the intention of generating measurable social and environmental outcomes”, says Impact Investing Australia.
The amount of money in “impact investing” funds is small but growing. It’s on target for $32 billion in Australia by 2022. Globally it could reach $1 trillion within a decade.
How successful are these impact funds in generating “measurable” social and environmental outcomes for their clients?
Not very, according to Morgan Stanley.
The investment bank has set out to change that — launching efforts to “explore ways to show tangible benefits from portfolios, using common measures that can be understood by anyone”.
Many impact investment funds provide clients with “Environmental, Social and Corporate” (or ESG) ratings.
But that usually doesn’t tell an investor how much progress is being made on a board’s gender inequality or a project’s environmental impact.
“Clients are saying that they care about returns and they also care about these other dimensions,” says Rui de Figueiredo, chair of Morgan Stanley’s Investment Management Sustainable Investing Council.
“One institution may emphasise climate change — another might emphasise gender diversity.
“As portfolio managers, it’s our job to understand the various issues that are important to clients, then tailor ESG approaches in ways that make sense for specific investment strategies.
“It’s not enough to just blindly look at aggregate scores.”
Morgan Stanley suggests a metric such as “the precise steps taken to make a property in a real-estate portfolio environmentally efficient.
“Other metrics could be cubic metres of water conserved or number of women in company boardrooms across a portfolio.”