Many people want to invest for impact as well as financial returns, but they’re feeling ambivalent. Why? Perhaps because it’s not clear how to proceed, especially since impact investing is coming under increasing scrutiny by regulators (which we consider a good thing) and also facing politically motivated attacks as vested interests are threatened.
In an opinion piece she wrote for the Puget Sound Business Journal, our Chief Impact Officer Justina Lai provided specific advice on how to gain confidence as an impact investor. Justina advises not to be distracted by all the noise. Impact investing is gaining in popularity for a reason.
As Justina said in this recent Q&A with her: “…impact issues such as climate change are increasingly relevant to asset pricing, creating many new investment opportunities and risks. Just as important, we think companies that operate in a sustainable manner have lower operational risk.”
But impact investing done right requires a cohesive and consistent process. The key to that, Justina writes, is finding out if your financial advisor “has a clear picture of your goals and the expertise required to deliver the financial returns and impact you’re seeking.” At LNW, we work with each interested client to articulate, develop and implement an overarching impact investing strategy and report on the results. All the while, we are adhering to the client’s financial targets – for diversification, risk, return and liquidity. So it’s a total portfolio approach and process.
Underlying all this must be a commitment to deep due diligence. If an asset manager cannot clearly explain what their process is for incorporating environmental, social and governance (ESG) factors into their decision-making, they may not have a process. We also want to know if the asset manager is applying ESG and impact standards to their own operations. And if we as a company are meeting ESG goals in how we operate. Impact alignment at all these levels creates a strong foundation for impact investing for ourselves and for our clients, as well as a way to measure progress.
Read Justina’s article in the Puget Sound Business Journal (subscription required).