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With Meghna Chakrabarti
Foundations and pension funds are under pressure to do more "impact investing," focusing not just on the bottom line, but also on doing good for people and the planet. But is it effective? If so, why isn’t impact investing catching on more?
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Deval Patrick, managing director and co-managing partner of Bain Capital Double Impact, the social investing wing of Bain Capital. They focus on bringing financial returns alongside social and environmental impact. Former governor of Massachusetts. (@DevalPatrick)
From The Reading List
Chronicle of Philanthropy: "Doing Good and Doing Well" — "Old-fashioned investments still eat up most of foundations’ assets. Why isn’t a bigger slice going to impact investing?
"There’s been lots of talk, but the vast majority of foundations are sticking with a century-old, bifurcated model of philanthropy: Money is given away on one side of the house, invested on the other, and never the twain shall meet."
Read the other three parts in Marc Gunther's series on impact investing.
CNBC: "Here’s how investors can save the planet and still make some money" — "You’ve read it in the headlines: Temperatures are rising and icebergs are melting.
"And as more evidence points to the growing influence of climate change, one area is sure to be impacted: big business.
"As evidence, take PG&E’s recent bankruptcy filing following the wildfires that ravaged California over the past two years.
"The company’s equipment has been blamed for contributing to those disasters. But another factor — the hotter climate and drier terrain in California and broader region — also contributed to the problem.
"'Any utility in those regions can be at risk for fires because they have a ton of infrastructure spread across a very fire-prone landscape,' said Julie Gorte, senior vice president for sustainable investing at Impax Asset Management and Pax World Funds.
"And the potential risks tied to climate change don’t end there.
"'Any company can face climate risk, and I think that is the 800-pound gorilla,' Gorte said.
"The good news for individual investors is that there are ways that you can invest with the intention of helping to make a difference and you can still make a profit doing it."
Financial Times: "Opinion: Day late, dollar short? In impact investing, urgency is vital" — "If you are reading this, it is likely you are familiar with the concept of the time value of money. Essentially, a dollar in your pocket today is worth more than a dollar in your pocket a year from now. This is partly because of the corrosive power of inflation, partly because if you have it now you can invest it and enjoy a year of returns.
"This will be elementary stuff for anyone who works with money. However, for the growing number of investment professionals with an interest in impact investing, we are missing an obvious corollary, which I call the time value of impact.
"This captures both sides of a coin. On one, the longer a problem is left unaddressed, the more entrenched it becomes. The solution is harder and more expensive, too. On the other, just like capital, impact can gain momentum and begin to accumulate faster, not unlike compound interest.
"Both sides point to the same conclusion: inaction costs, not just in money but in people’s lives. Time matters."
Vox: "'Impact investment' funds advertise great returns and social impacts. They aren’t delivering." — "'Impact investing' is built on a simple idea: If you’re going to invest your money, you’ll want to invest it in companies that are doing work that you believe in. Easier access to capital lets companies do more — expand into new areas, build new products, take promising bets. Your investment would allow a company you believe in to do all those things.
"Proponents claim that impact investing is good for the individual investor, too, with many funds advertising that they seek results for the world without sacrificing performance for the investor. In other words, they claim that impact investing won’t just do good — it will make you money. It’s not surprising that younger people seem to overwhelmingly want to invest their portfolios in socially responsible companies.
"So this is a good way to do good, right? Well, not really.
"In particular, when you do the math, impact investing seems worse for the world and worse for your pocketbook than just investing traditionally, earning higher returns, and donating the difference. Impact investments are often marketed as a cost-free way of doing good. But they’re not cost-free, and under typical circumstances it doesn’t look like they’re doing much good."
Hilary McQuilkin produced this hour for broacast.
This program aired on March 13, 2019.
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