June 18, 2014

Responsible Investment and Impact Investing – A meeting of minds

By Kelly Gauthier

On May 26-28, 2014, Purpose Capital, as an active and engaged member of the RIA for a number of years now, attended the RIA Annual Conference in Toronto. This year’s conference was a great success, with excellent turnout, stimulating speakers and dynamic networking. It is no small feat to execute an event of this size with grace and ease, as the RIA did. The question I walked away with was, what’s next? How does this industry evolve and how will next year’s conference reflect that?

While Purpose Capital is primarily an impact investing group, our clients are concerned about the impact of their whole portfolio. Increasingly in the last few years, our work has shifted from how to do an impact investment to how to create an impactful portfolio. This has been driven both by client maturation and by our own emphasis on a portfolio approach to impact.

While a small allocation for impact investing is a logical place to start, most clients quickly come to realize that there are many approaches they can implement to achieve a more sustainable and impactful portfolio. This includes the whole range of “social finance” terminology – Socially Responsible Investing (SRI) mutual funds, Responsible Investment (RI) and the integration of Environmental, Social and Governance (ESG) factors, thematic funds, impact investing, and community development.

However, this concept has yet to permeate the product provider community; SRI has been around for decades, RI/ESG for about half as long and impact investing is the new kid on the block. While each approach espouses to be the next best thing for investors, the reality is that each has its benefits and challenges. When assembled in a thoughtful, intentional portfolio, all aforementioned approaches work quite well together. As a portfolio, these approaches allow investors to vary the risk/return profile, structures, liquidity and impact.

Aligning how investors and providers view this market is a challenge we believe that industry associations and conference organizers need to tackle head on. Providers need to engage investors on what type of product they want and how to grow their social/impact portfolios. Investors need to push their advisors and managers to deliver a comprehensive set of social finance investment options to meet their needs. Collectively, we need to collaborate to overcome the regulatory and structuring hurdles that currently challenge the evolution of the market and expansion of product options. Industry associations, such as the RIA, can play a critical role in fostering this discussion and overall industry evolution.

This is a significant market opportunity – how do we attract the other 99% of assets into our market? Politics and competition aside, by embracing the entire spectrum of social finance options, we can provide more investable options and better service to investors. This will serve to increase assets in social finance, creating more demand for product development, and deepening the social and environmental impact of our investments (Not to mention growing the pie for everyone!).

The RIA has had one or two impact investing sessions on the agenda for a number of years and has taken intentional steps to integrate the impact community into the RIA. However, the fact remains that the RIA membership and agenda are still dominated by SRI and RI interests. Yet at this year’s conference, there was a constant dialogue about impact investing and how to effectively and more deeply integrate it into what attendees are currently doing.  We have high hopes for the 2015 RIA Conference in Banff – that it will more fully embrace and integrate an open dialogue around all aspects of social finance and the full spectrum of product options!

For all those that take the time to read this – take up the challenge! Regardless of what “side” you come from, consider the benefits of integrating the full spectrum of social finance into what you do and how you work with investors.