In the Industry: Q2 Impact Digest

Sustainable funds held their own and oil prices did not drag renewables down with them in this look at impact headlines from the second quarter.

It would have been understandable for the COVID-19 induced market volatility to disrupt impact investing’s growth trajectory, but we believe the overall trends are as promising as ever as the articles in this quarter’s digest highlight. After weathering the coronavirus pandemic, on average, better than their traditional peers, sustainable equity funds also kept up during the rebound in the second quarter with the returns of 72% of sustainable equity funds ranking in the top halves of their categories through the first half of 2020, as mentioned below.

The upheaval we are all experiencing helps to reinforce the case for impact investors to focus on companies that provide living wages and competitive benefits. Companies with better employment practices, including allowing for flexible schedules, providing backup dependent care and offering healthcare benefits and paid sick leave, were better positioned to withstand the challenges of the pandemic. Those companies that value and retain their employees and protect their brand reputations during this recession may also have competitive advantages in an eventual economic recovery.

With this growth and renewed attention come potential future challenges. Increased interest in ESG-centered investments could lead funds to “impact wash” their offerings to make them seem more appealing to an impact-focused investor than they are. The broader and more popular the impact space becomes, the stronger the need for companies and funds to make specific commitments and to report on measurable results to back them up. Shareholder pressure is a significant way that investors can push companies to share that information and to live up to their stated commitments, so we’ll continue to pay attention to how our managers are voting their proxies as the annual meeting season continues.

In the News

Morningstar

Sustainable Stock Funds Held Their Own in Second-Quarter Rally
72% of sustainable equity funds ranked in the top halves of their categories through the first half of 2020, and 18 of 26 ESG-focused index funds outperformed comparable conventional index funds in the second quarter. While some of this is attributable to a relative overweight to technology in many funds, selecting stocks based on ESG criteria had a larger positive impact on performance in the second quarter than the allocation effect of any one sector.

Wall Street Journal

Companies Try New Tactic to Tap Climate-Sensitive Investors
A new type of bond designed to help companies looking to transition to more sustainable practices offers impact investors a new option for their portfolios. But a lack of established guidelines raises questions of how investors can responsibly work to speed up the move to more environmentally sustainable ways of doing business.

Morningstar

Investing Has a Role to Play in Ending Systemic Racism
If you are committed to addressing the vast and growing wealth disparity faced by Black Americans, how you invest matters. Investors have the power to help push companies forward on things like pay equity and diversity, as well as equity and inclusion policies. It’s especially important to remember this as proxy season is around the corner, and votes really can matter.

Wall Street Journal

Investors Channel Over $150 Billion Into Coronavirus Bonds
Investors are pouring money into so-called COVID-19 bonds, aimed at supporting medical research, healthcare and broader relief efforts. $151.5 billion had been invested globally through May 31, but a lack of clear requirements for what these bonds can be used for could make their impact difficult to quantify in the short term.

Barron’s

New Study Shows That Signing Responsible Investment Principles Doesn’t Mean Better Sustainability — or Better Returns
Signing the UN Principles of Responsible Investment is one of the gold standards of impact investing, but for some firms, it could be little more than a money grab. In the first six quarters after signing, surveyed managers saw a 3.3% flow increase but no improvements in ESG scores or investment returns.

Bloomberg

Oil Slump May No Longer Be a Curse for Renewable Energy
Tanking oil prices typically spell bad news for renewables, but not this time. With no incentive to travel, cheap oil hasn’t been enough to drive up demand as we’ve seen during price drops in the past, and major players like BP and Shell are restating their commitment to transition to renewable energy.

Research & Reports

GIIN

Global Impact Investing Network 2020 Annual Impact Investor Survey
This latest annual survey estimates the size of the impact investment market at $715 billion globally, with U.S. assets accounting for $206 billion, and 68% have performed in line with their expectations despite risks. While impact investing is growing rapidly, one major challenge that could be on the horizon is the spread of impact washing. As impact investing gains popularity, so could the temptation for companies and funds to try and put an impact spin on questionable investments.

Rockefeller Philanthropy Advisors

Rockefeller Philanthropy: An Implementation Guide for Practitioners
For impact investors, especially those new to the space, it’s important to think carefully about what you hope to accomplish with your investing. Key to this is developing a personal theory of change – identify your long-term impact goals, then work backward from there to identify specific actions required to achieve those goals that you can support with your investment choices. It’s also important to remember that while not all investments would be considered impact investments, all investment choices have an impact beyond just financial returns, good or bad.

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