Recent events, including the COVID-19 pandemic and protests to end racism in America, are putting a bright spotlight on corporate governance and may pull impact investing into the mainstream.

How a company reacts to a crisis and uses its voice to address social issues have become key factors in impact investing. And, it’s difficult to think of another point in time when there has been such a singular focus on companies attempting to do the right thing by all their stakeholders—investors, employees, customers, and local communities—while also struggling through an economic shutdown. Companies are:

  • Pledging money to support causes focused on diversity and inclusion.
  • Making changes to hiring practices and setting diversity goals within their organizations.
  • Pivoting their operations to manufacture PPE.
  • Providing housing or services for essential workers.

These are just a few examples that highlight not only the role public and private companies can play in addressing social problems, but also how they will be measured from an impact standpoint. This may matter now more than ever, as impact investing continues to grow in popularity.

In 2019, flows into U.S. sustainable funds more than quadrupled the previous annual record for net flows.1 And, according to a recent Nuveen study of high-net-worth investors and financial advisors, 54 percent would invest their entire retirement balance into a responsible investment portfolio.2 The top issues they want their investments to address include: fair treatment of employees (48%), human rights (48%), and climate change (47%).2

Investors had already shown an interest in buying into companies focused on climate change, board diversity, or human rights issues, but the pandemic has highlighted the importance of other factors, among them: disaster preparedness, continuity planning, and treatment of employees through benefits.3 As companies are making changes, investors may evaluate them through an impact investing lens based on current events, considering:

  • Inclusive hiring practices: Do they have a top-down focus on building a strong culture of belonging and workforce diversity? Do they have policies, programs, investments, and initiatives that advance this vision, and are they measuring and reporting on their success?
  • Contributing time and money: Are they committing meaningful resources toward causes that promote inclusion and diversity? Are they encouraging their employees to get involved in community-based activities and providing time off to do so?
  • Work environment: Was their disaster recovery preparedness effective? Do their employees have the tools and support to work remotely for long periods of time?
  • Sponsorship: Do they have programs in place to train and mentor employees that will diversify their company throughout the ranks? Do they have a scholarship program to encourage and train a diverse pool of applicants for future roles?
  • Creating a Forum for Discussions: Do employees have a safe environment where they can raise issues and have important conversations?

Both the protests and pandemic are demonstrating that many people have strong convictions, and they want to help promote change. All of these issues may drive interest in impact investing, where people can align their values with their actions by incorporating these types of considerations into their investments.

Impact investing is a strategy your clients may be interested in learning more about and can lead to deeper relationships. You can help support this journey by leading first with empathy and having proactive and honest discussions about values. Your clients should feel comfortable communicating with you and that they can trust you to address their concerns and provide personalized guidance.

Now is the time to reach out and start the conversation.

Sources:

  1. Kristin Broughton and Maitane Sardone, “Coronavirus Pandemic Could Elevate ESG Factors,” WSJ.com, last modified on March 25, 2020, https://www.nuveen.com/en-us/thinking/responsible-investing/fifth-annual-responsible-investing-survey.
  2. “Performance tops investors’ motives for responsible investing,” Nuveen.com, last accessed on July 2, 2020, https://www.nuveen.com/en-us/thinking/responsible-investing/fifth-annual-responsible-investing-survey.
  3. John Hale, Ph.D., CFA, “Sustainable Fund Flows in 2019 Smash Previous Records,” Morningstar.com, last modified on January 10, 2020, https://www.morningstar.com/articles/961765/sustainable-fund-flows-in-2019-smash-previous-records.

The information, analysis and opinions expressed herein are for informational purposes only and do not necessarily reflect the views of Envestnet. These views reflect the judgment of the author as of the date of writing and are subject to change at any time without notice. Nothing contained in this piece is intended to constitute legal, tax, accounting, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type.

Written by Tim Clift

Mr. Clift serves as Chief Investment Strategist at Envestnet | PMC and is responsible for research and consulting services for the organization. He leads a team of analysts who are responsible for the selection and monitoring of investment managers and a team of consultants who support institutional and advisory clients. Mr. Clift serves on PMC’s Investment Committee and is instrumental in setting investment policy for the Company.

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