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Advice and Resources for Getting Started with ESG/SRI Investing

Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives

Q3 2019 hedge fund letters, conferences and more

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Every investment has an impact, whether intended or not. That’s the exciting reality.

There’s a paradigm shift in the world of business and the investment community. People aren’t just thinking about profits. They’re thinking about place, planet, product, processes and profits. Whereas the double-bottom line was once viewed as forward thinking, today’s conversations revolve around the triple-bottom line, which includes environmental impact alongside companies’ financial and social considerations.

Impact investing is a relatively new concept, but it’s gaining momentum.

And it’s time to get involved.

For those new to impact investing, it’s not philanthropy. Although there is overlap between socially desirable outcomes and philanthropic efforts (think eradicating poverty, empowering underrepresented communities, lowering greenhouse gas emissions, etc.), impact investing channels dollars toward “doing good” with the expectation of financial returns.

Yes, there’s a certain level of subjectivity sewn into its definition, but at its core, impact investing involves deploying capital with the aim of creating some measurable positive social outcomes and getting strong financial returns. Fortunately, as impact investing continues to evolve and seek standardization, it’s becoming easier for investors and advisors to get involved and to identify the companies that best align with their goals and values.

For advisors who are new to this space, impact investing is a highly disciplined and analytical addition or overlay to existing investment classes and styles, and the goal – as well as opportunity and challenge – is to uncover and invest in the most responsible and profitable companies. Those advisors willing to undertake the due diligence required to be able to speak with clients comfortably about impact investing stand to not only grow and deepen those relationships, but have the opportunity to make a difference in the world simply by showing up and doing their job day in and day out.

If you’re an advisor looking to differentiate your practice from others, consider this article to be your first step toward a better understanding of impact investing.

But first, some acronyms

When talking about impact investing, two acronyms often come up: SRI and ESG.

Socially responsible investing (SRI) focuses on deploying investment dollars away from certain areas a fund manager may deem undesirable, such as companies that produce weapons, tobacco products or oil. One way to think about it is like this: whereas impact investing channels funds into doing good, SRI uses screens and filters to steer money away from doing harm. Again, just like with any investment, strong financial performance and risk management are prioritized.

That’s also the case with environmental, social and governance (ESG) investing. Like SRI, ESG investing generally serves as a screen to identify and weed out companies with unacceptable environmental, social, and governance practices while prioritizing financial returns.

ESG screening typically happens while conducting due diligence on a potential investment, and it’s most commonly used in the context of public market investing, where an entity is evaluated on whether or not it’s taking sufficient steps to meet or exceed specific areas of corporate responsibility. Because of ESG investing’s ability to identify things like unethical supply chains and harmfully sourced materials, research suggests that ESG-focused investments can lower the riskiness of an investment, which should reassure many advisors and investors who are new to impact investing.

Read the full article here by Danielle Burns, Advisor Perspectives


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