Impact Investing Workshop: Navigating Uncertainty – Getting Clear On My Why

Full Workshop Transcript

​Introductions and Overview of the Agenda 

Lori Choi: Welcome everyone. Thank you for joining us for today’s webinar called Navigating Uncertainty: Getting Clear On My Why. My name is Lori Choi. I’m a Senior Advisor and Partner at Veris Wealth Partners, one of your co-hosts today. And my esteemed co-host is Rehana Nathoo of Spectrum Impact. 

Before we get started, I wanted to share a little bit about Veris and the agenda today.

At Veris, we’ve been pioneering sustainable and impact investing for individuals, families, and foundations for nearly two decades. We’re partner owned, majority-women-led, and specialize in helping clients meet their financial objectives as well as their social and environmental goals. We work across public and private markets and offer wealth management services and financial planning, as well as investment advisory services for foundations and endowments.

I have the privilege of getting to work with our clients and have been at Veris for over 15 years. I work with our New York office, but I’m based in Dallas.

And whether you are an inheritor, successful business professional, retiree, or family office leader, family foundation trustee, we hope you find today’s session helpful.

This session was born out of conversations we’ve been having with individuals, families, and foundations, especially in this moment when sustainable and impact investing is facing real policy headwinds and markets feel a bit uncertain.

What we kept hearing was, I care deeply about values aligned investing, but right now, how do I stay focused and keep moving forward despite the noise? Uncertainty can be paralyzing. And that’s what today is about, cutting through the noise, getting grounded in our purpose, and having real tools for clarity in decision making.

And when I started thinking about who I would want to co-lead a session around clarifying your mission or impact thesis, Rehana Nathoo was the very first person that came to mind. Very thrilled when she said yes and excited for you all to hear from her. She’s going to kick us off in part one, walking us through her process of building out an impact thesis, helping us define our why in terms of impact. She’ll bring structure and depth to our thinking and challenge us to get specific and resourceful in how we tackle the issues we want to solve. She’ll also share with us about how you determine the impact you’re having. Be sure to stick around for part two of the session.

I’ll guide us into a bit more of your why, but mostly lean into the how- how to take your impact thesis and zoom out a bit broader to consider financial factors as well as other purposes of your portfolio. Maybe talk a little bit about what we like to call the purpose portfolio, the three dimensions of your portfolio, walk you through how to connect your values to investment decisions and guidelines. We’ll also cover lots of questions you should be asking when you’re evaluating new investments or even philanthropic choices. So you’re not just reacting, but you’re leading with intention. Be sure to stay till the end. We’ve got lots of great frameworks and tools for you to benefit from. You won’t want to miss it. Part three, I mentioned we’re going to have a Q & A. 

Rehana Nathoo on Building an Impact Thesis

Rehana Nathoo: Thank you Lori, and supreme gratitude to Lori and the Veris team for making this happen. One of the benefits of being focused on the strategy side is that you have the great privilege of working with organizations that are best in class on deployment. It’s a pleasure and a privilege to be here with the Veris team and with Lori.

As Lori mentioned, my name’s Rehana Nathoo. I am the founder and CEO of Spectrum Impact, a strategic consulting firm that focuses on building out values-based approaches. We typically come in very early in the journey. Our clients are single family offices, foundations, corporates using balance sheet capital, and fund managers that are trying to figure out what it looks like to actually build an impact investing, ESG, or sustainability approach. As everybody in the virtual room will know, our field is one filled with jargon and not often a lot of clarity.

Lori and I would love to start to cut through some of that, take you through our respective processes, and come to the end where you have a really clear roadmap about the way forward.

So I’ll kick us off, talking about some of the principles that we use in the strategic design process. And we often start first and foremost with something that we call an impact thesis. Those of you that come from the space have probably heard theory of change, North Star, Compass, all of the above. Any of these terms are an appropriate way of thinking about what your impact thesis is.

Essentially we’re trying to create a very clear linear relationship between the change that you want to see and the specific actions, and in this case, investments you might undertake that would demonstrate that you’re moving the needle. So I’d love to do two things with my time today. The first is to take you through this process of creating an impact thesis, and then the second will be struggling together with the difference between a contribution versus an attribution mindset and how you might bring that to the work that you’re going to do. So we thought to be able to go through the impact thesis work, instead of throw jargon at you, we would run through a real life example.

This is an example that this Spectrum team has worked on with a client before. And it’s very specifically focused on a difficult challenge or problem to undertake. So we wanted to show you that even these big, seemingly complex questions can be broken down into an action plan that your investments can be programmed towards.

Hopefully you can all see the slide about building an impact thesis. I’ll start with the key components that go into an impact thesis, and then we’ll work through the example. So the first thing I just want to call your attention to is the box at the top that says systems change.

When we think about systems change, we are thinking about the underlying structures or dynamics or root causes that lead to a specific challenge that we observe in the world.

Notice that I did not say a specific challenge that you are going to solve or unique to your organization.

A really compelling systems change is an observable challenge that exists whether you decide to engage or not engage. And that’s particularly important because it is a reminder that there are multiple organizations deploying different types of capital that might be addressing the same systems change as you are.

So when we go through this work, we remind our clients that it’s unlikely they are tackling this problem alone. Being clear about the problem you’re trying to solve will help you find potential partners to deploy capital with, whether through co-investment, formally, or an informal partnership.

So we start with, what are the conditions that make this problem a problem? Once we have figured out the real challenge that we want to get our hands on, we need to start thinking about where our organization can play. And so that’s when we start to think about outcomes.

So for us, outcomes are specifically where the analysis happens about whether our actions have made an impact towards that system’s change. So we want to know, what’s the hypothesis or a set of hypotheses that will allow us to actually address the systems change problem?

For some of our clients, these are investment verticals. Investment themes represent portfolio values. They are your attempt to solve the biggest problem you’re trying to attack. Those outcomes are fantastic, but they lack utility if you don’t have outputs. So outputs are the results of the specific actions you take. Highly measurable, often quantitative, although not always, sometimes qualitative, that demonstrate that your end beneficiaries are actually seeing some sort of positive result. So when we go through this process with clients and show them this, we often get a blank look of, oh my goodness, this is a huge thing to build.

And the thing that we remind folks all the time is that the most important part of this relationship is between your outcomes and your outputs. So every hypothesis that you’re testing, you should be able to calculate measurable, demonstrated benefits that serve that outcome.

So if you take nothing away from these slides, the one big thing I would say to you is as you start to build your outcomes, make sure that you’re thinking as concretely as you can about how you would measure them. It’s in that measurement that you really get a great sense of how capital is being deployed.

And then once you have both your outcomes (the hypothesis that you’re testing), and your outputs (the ways to measure that) you end up with a toolbox, which Lori will go very deeply into in her part of the presentation. But the idea in the toolbox is that there are multiple ways to deploy capital, to have that change. In some cases, a certain type of investment may be more appropriate. In other cases, a certain type of partnership may be more appropriate. A lot of our clients walk in the door very focused on the tools, and we gently remind them that tools when deployed effectively can actually exist across the entire portfolio.

The more important question is, what is the best and highest leverage tool for the goal we’re trying to achieve? So let’s put that into a living example.

As I mentioned, this comes from one of Spectrum’s clients and it was a very long and difficult challenge to undertake, as you probably can tell from what we’re biting off.

But we wanted to make sure that the investment portfolio we were building was really focused on changing behavior.

So I’ll start right up at the top. When this organization was thinking about the systems change they wanted to tap into, they were really thinking about the way that women who live on less than $5 a day live in the world. They had an assumption about what prohibited them from quality of life, and they had an assumption about what success will look like.

I’ll break that down very quickly. So the systems change statement here says biased legal frameworks, exclusionary financial systems, and restrictive social norms have prohibited women who live on less than $5 a day to achieve financial independence and prosperity. So there’s three key components to this effective systems change approach.

The first is to name the underlying structures: bias, legal frameworks, exclusionary financial systems, and restrictive social norms.

The second is to identify your target population: women who live on less than $5 a day.

Also to be very clear about what success looks like, which is the achievement of financial independence and prosperity.

As you’re building out the systems change, don’t be too afraid by something that feels particularly lofty and big. We would argue that it should feel like a tough nut to crack, so you can build different outcomes that might together move the needle. That was the systems change we landed on.

This particular organization had two assets. The first was a long history in the credit space, particularly the way that credit gets to first time entrepreneurs and female founders in emerging markets. The second was a very strong bench of staff that focused on advocacy and political action.

So you’ll see here that the outcomes actually represent the organization’s strengths. The first outcome or hypothesis to test – that it is possible to promote the economic agency of our target population by increasing the control of their income and assets. That’s hypothesis number one.

Hypothesis number two is that, simultaneously, this organization encourages legal and social reform by specifically addressing barriers to financial prosperity, like land rights or unpaid care. And then if you continue to follow these two verticals down, you’ll see that there are specific outputs for each outcome. For the economic agency outcome, some of the things that we measured across the entire investment portfolio included net new access to digital, mobile banking, or wallet services. That’s specifically focusing on how virtual banking, digital banking, and virtual currency can give women access to their funds quicker and faster, especially where there’s lacking infrastructure. Or you might look at the number of women enrolled in savings collectives or cooperatives with account balances as a way to determine that your investments are making sure that women have access to capital quicker.

On the political action side of the impact thesis, you might look at the net new number of women who are receiving legal aid or paralegal support if they’re in a land dispute, or if they have a labor rights infraction. Or you might see an increase in the number of community childcare or elder care projects that would free some of these women from unpaid labor and create time for more paid labor.

So in both of these outcomes across the portfolio, you’re testing separate things, but what’s important is that you are tracking all of the things that you test in a unique way. In a moment, we’ll talk about how we bring all that together. But for now, what I hope that you’re taking out of this is that each of the outcomes have a clear set of metrics that they’re trying to track towards.

And then at the bottom, we’ve listed all of the tools in the toolbox that might be available to this organization because of the two specific outcomes that we’re testing. So you could imagine that in the financial access vertical, equity or impact-first debt or convertible debt or straight loans could be highly valuable to achieving that outcome.

And in the social reforms outcome, you could imagine grants, policy engagement, and partnerships being pretty catalytic.

When we talk to our clients about using every tool in the toolbox, this is a little bit of what we mean. You don’t necessarily need to deploy every single tool in every vertical, but you do have an entire range to pick from that would help you meet the goals of your various hypotheses.

So this is the impact thesis. It is not designed to be a hard and fast set of guidelines. Many organizations as they spend time on these topics find the ecosystem has changed, the funding picture has changed, the theory of change, the systems change has changed.

An impact thesis is meant to be iterated on. It’s meant to be revised. It’s not meant to constantly be under construction but it is there to allow you to update it when the situation or the circumstance that you’re operating in has changed.

Once you go through this process, don’t feel like this is set for the next 20 years. We have lots of clients that revisit their impact thesis every three years, every five years, and some even annually. This is meant to be a living, breathing framework that grows as you grow.

That’s how the impact thesis piece works. The second piece that I want to talk just a little bit about for a moment is how to measure whether the success or the change is actually happening.

I would say this is actually a little bit more complicated for some of our clients than talking about the impact thesis piece. Because it is trying to figure out what your impact on a very big, complicated issue has been, which is universally difficult to do, whether we’re talking about impact investing or something else.

So I just want to take a few moments to paint two different pictures about how we think about determining what that impact is. These terms do not come from impact investing or the values-based space at all. These have existed across development work for a long time. But we try to think about this in terms of attribution and contribution.

When we’re talking about attribution, we’re talking about the direct link between an outcome. So remember that’s one of your investment hypotheses and a specific cause or action. That cause or action is directly related to the outcome that you invested in and vice versa: A equals B. When we’re thinking about contribution, we are contending that multiple factors likely influenced an outcome. And the intervention that we undertook probably played a part, but it’s not necessarily the sole reason that something happened.

So think about attribution as being a tiny fish in a very big pond and think about contribution as being a very big fish in a very tiny pond. In the first, it’s very clear to see the kind of impact that you’ve had. And in the second it’s more complicated. Most of what we observe in the impact world is contribution, not attribution, which is why you all are here today. But it’s important to grapple with this as an organization to get a sense of what you need to demonstrate for success. In attribution, do you need to show that the reason something happened is because of a direct action that you undertook? Or are you able to participate in a contributory mindset, which is that one small piece of our work may have moved the needle on a particular goal.

On the attribution side, you’ll see an example here about an intervention. So the intervention that we chose was funding was made available for 10,000 mobile health units distributed across a range of communities in a given country.

The attribution mindset would say, because we did this funding, because we provided access to these mobile units, maternal mortality decreased by 15%. Contribution would suggest our mobile clinics were one key component of achieving this outcome, probably alongside policy changes, infrastructure changes, and so on.

I think this is probably quite intuitive to so many of you. This particular piece around thinking about your own internal organizational comfort with attribution and contribution will be such an important part of making sure that you’re measuring your impact but not holding yourself to such a high bar that you never seem to accomplish anything.

And I think that’s a really important takeaway of this strategic framework. They’re meant to guide you, but they’re by no means hard, fast, and set. They’re meant to be used in a way that actually works for your organization.

So I’ll stop there and turn it back to Lori. If we have any questions about this piece in the Q & A, I am more than happy to go through them.

Lori Choi on Building an Impact Investment Portfolio

Lori Choi: Thank you so much, Rehana. That’s wonderful. I just love how it’s taking a scientist approach, a thesis approach. Just as a transition between Rehana’s section and our section, one of the things that, as we go to apply deep thinking around impact requires us to a little bit step back and say, okay, now what are the financial guidelines or guardrails we need to keep in mind as we go to build out our investment portfolio? And so I’m going to take us a little bit higher level, using some of the resources that we use with our clients.

This is a disclaimer. Thank you to compliance. This is one slide for an individual and we have one for foundations. Rehana took us through a lot of the impact mission piece, of what are we trying to solve as we go to thinking about one of the tools in the toolkit that she mentioned, specifically the investment portfolio, there are some pieces like return goals. If you have a lifestyle that you’re taking a withdrawal from your portfolio, for example, you’ll need it to earn a certain amount of return. You may have giving goals. Philanthropy might be part of your overall plan – gifting, family legacy. You might have high taxes that you want to be planning for and thinking about the investment that you make. And you want to be considering time horizon.

So these are the elements that, as we go to think about impact and some of the specific elements that Rehana mentioned, our underlying funds and managers can measure those and report back and it depends on the asset class. To be transparent, this is part of the process of understanding, by asset class, what are the options available to address that particular challenge you’re trying to work on with your dollars.

So that creates tilting the public markets or setting negative screens. Sometimes that means shareholder engagement, and setting impact priorities for thematic, proactive investment in, let’s say private investments. We’ll take a look at that further.

This looks at foundations. You may have slightly different guidelines here, but very similar. It is a framework I wanted to share because many individual and family foundations are more informal. Maybe don’t always have a fully written out investment policy statement, it’s critical to set some of these guidelines upfront. You may have a different advisor just even for yourself, to create some clarity around, what’s the scope of what we’re talking about here? What are the resources available to us to invest? Maybe contextually what other things are outside of that? That’s the additional assets piece. What is the asset allocation target? So that goes into, what are the return goals and risk, appetites for your portfolio. What withdrawals may be needed out of the portfolio throughout the year, tax sensitivity, et cetera.

We can’t ignore that piece as much as it’s fun and interesting to focus on the impact piece. We do need this as one dimension of the portfolio. I talked about the three dimensions of a portfolio that we’d like to talk about.

The other piece is what’s the financial purpose? Part of it might be the spending needs. Some of it is legacy, some of it is long-term growth. Having these three dimensions where it’s the financial allocation to help you get your return goal, the purpose around the financial, how the money is going to be used?

And then thirdly, what is the impact purpose? You may insert here, your impact thesis that you did, using Rehana’s framework, it’s useful if you have a specific portfolio, to go into the details of what might you want to exclude if it doesn’t align with your values. Obviously, those are just optional.

An example of an individual, generalized one from some of our client portfolios. So at the top it says, the purpose of this portfolio is to support living and business expenses, fund children’s education and charitable giving while having a positive social, environmental impact.

This goes to the second bucket of what is the purpose for, and a little bit broadly speaking to the third piece. Then we can go into here’s how we can have clarity on what we are talking about here. Okay, it’s a $7 million individual portfolio. This person happens to also have a trust outside. So maybe there is some income or potential principal that can be accessed, but that’s not the piece we have control over. It’s good to know that exists for other purposes. This individual may have an ownership in a business stake or family limited partnership, whatever it may be.

One might have a donor-advised fund, which is another tool in the toolkit like Rehana mentioned, that sometimes impact investments can be done. If it’s a very high risk opportunity, maybe it is better placed in a donor-advised fund, where the money has already been gifted out and a return of capital, maybe all that you would really desire from that opportunity.

But really, having all the options available to you is really useful to know. You might have a personal residence, et cetera.

Asset allocation, this is just an example, 75%. We talk  about equities and alternatives together because we think of them as risk assets. When we build portfolios, we want to make sure that we’re budgeting enough for the spending reserves of what a client needs. So that’s where we put fixed income and cash. And we know that markets can be volatile from peak to trough to peak, some of the longest downturns have taken about seven years to recover, and maybe on average about four to five years.

So we target about five years, sometimes more, sometimes less, for clients to think about an asset allocation that’s really going to meet their withdrawal needs. This is an example. Maybe the withdrawal rate is three to 4%, maybe with a 75%, equity and alternative portfolio, doable and manageable without dipping into principle. But of course there could be many other goals, like a spend down portfolio or other things. Just mentioning this as a common situation.

In terms of tax sensitivity, you might be a New York resident and want tax free bonds. As you think about impact all the way, did you know you could get New York tax free bonds as well that have a social purpose orientation to them? Right?

So it’s looking at all these things. They have to coexist in order for you to meet both your financial and your impact goals, as we think about what you might prioritize. You could have a very specific thesis like, we just talked about, or you might have more broad priorities and may not have had the time to dig in deep. I’m just showing broad name categories here today, for example. But we welcome all the thoughtfulness. 

We, at Veris, have a questionnaire that we do a slightly different process from Rehana’s, but also in the same vein of trying to get to clarity and your own sense of what is important to you. Some exclusions might be necessary. We realized that they have slightly different payout parameters, maybe goals around perpetuity. These things might be very detailed and prescriptive in terms of ranges around what asset classes can be invested in and how much.

This is a highlight of what we try to keep top of mind whenever we talk to our foundation clients, but there is really a deeper multi-page, investment policy statement that goes behind this. I encourage everyone to make sure that you are keeping those up to date.

There may be a portion that can go towards high impact program related investments, which is a little bit of a longer conversation, but, again, something that’s more tied to the specific mission of the foundation and can be used towards the grant budget. You can do these impact goals or priorities, iterations in whatever way that serves you. This is a deeper dive on the ES and G components and what areas were of most concern to this particular client. You have freedom to make this your own. We have a tool to follow.

This is just sharing a little bit that, as we talk about building portfolios and asset allocation, I talked about the spending reserve, how we would shift that if your spending was going to change over time, and that the sustaining growth portfolios, risk is where we put risk assets.

And as we think about implementing your theory of change, thematic investment is a way that we can have more impact on the private public side. It’s mostly about reducing harm, I would say. And shareholder engagement and proxy voting is critical. I think there are some more direct ways to have impact through private markets. As we think about intersectionality and themes, these are just examples, some of the ways that we think about impact, it is in naming to that, sustainable and regenerative agriculture or climate solutions. These issues often relate to one another. As you’re building out – what matters to you and your values, it is very acceptable to say, Hey, I care about more than one thing.

And maybe you want to build multiple impact theses out. As we think about going across asset classes, any theme can be applied across asset classes, and some themes will have many more options like climate solutions and the environment will have many more alternative options maybe than sustainable and regenerative agriculture.

Although these are all very important topics, the market needs to catch up to creating commercial opportunities to invest in. In some cases you may have an impact thesis and area of focus that is still in the philanthropic stage needing more funding and catalytic dollars so just encourage your creativity in how you structure your investments and giving.

And of course, as you’re making decisions on investments due diligence and manager selection process is important. This is just Vera’s process as a high level and not going to go through it all today, but just six Ps around understanding all the financial pieces of the investment, but also thinking about, okay, what is the impact piece and how can we look at measurable impact metrics and evidence to see what outcomes we’re getting from being an investor in this opportunity.

We do have some investment worksheets to work through. Fill in the blanks with your own investment portfolio. And before we head into questions, I wanted to just talk through a little bit of this investment decision framework. The goal with this tool is to give you a way to gut check all of these different areas, which are important, like your mission alignment, but also the financial piece and how does it fit also with your current investments, right? And especially in the evolving ESG, DEI challenging marketplace. So just being mindful of all of that.

So first of all, as you’re thinking about an investment opportunity, you may be wondering how does this work – particularly to advance my impact goal? And you can match that against your impact thesis and what you’re trying to solve. Does it address those? And I think that it’s a little bit of a yes no, unclear. This is just to help you guide through the decision matrix.

Also, hey, does it violate anything that I’ve already stated I don’t like, or I don’t believe in, or don’t really want to be associated with. I think those are fair things to ask yourself.

And how are they managing against the current backlash? We hope not to see this very often, but occasionally we do see a bit of mission drift or changes in site policies, sometimes very warranted, but other times, we just want to keep an eye on how things are shifting for a manager or funds approach.

How does it fit against your guidelines? Again, financial fit. Is the return in the ballpark of what you are looking for? Is the time horizon? What about illiquidity? Especially in private markets, we really need to be mindful of illiquidity. Sometimes these funds can be 10 to 15 years investment opportunities, so we need to be sure we have sufficient liquidity outside of that.

And, as well, looking at current markets in a higher inflation environment, if that’s what you believe, or if you believe there’s a recession risk coming, how will this investment work?

In some cases, for example, we have an affordable housing investment that invests in properties that are. Getting section eight support and vouchers. That is actually very recession proof because the more there is hardship amongst society, there’s actually more demand for affordable housing. And so there are things like this that can actually be a benefit or be a counterpoint to, what you may think is, higher risk in this type of environment.

In terms of impact measurement, there have got to be some really clear, measurable metrics and outcomes and you want to make sure you’re getting impact reporting and that doesn’t change in this current environment.

And of course portfolio integration. How is it fitting within the overall piece? As you build out an alternatives part of your portfolio, you may also want to think about vintage year diversification, asset class diversification and impact theme diversification. You may be really committed to just renewable energy investing, and maybe that’s totally fine for you and your risk tolerance and in some cases you may want to diversify and consider that.

Depending on all of these things, it could be a yes, it could be a no. But there are always going to be new investment opportunities. So don’t compromise on your values or financial goals, wait for the right opportunity.

There’s a bit of a quick reference sheet here and, by asset class, some questions you might want to ask yourself. This is public markets, stocks and bonds going a little bit deeper into ESG, and shareholder engagement topics and then private markets and direct investments and program-related investments (PRIs).

And red flags to look out for. This tool is really just to support you in your decision making. Again, we want to take away some of the uncertainty, focus on the things that you know, which are most of the times your values, what you want and what your goals are. And then you can just filter through all the other opportunities against those values.

Q&A

So with that, I’m going to bring Rehana back and open it up for questions. If you haven’t had a chance to type in a question into the Q & A box, please go ahead and do that and. In the meantime, we will do a little bit of chitchat, and I’ll start by asking Rehana a question.

Rehana, it was so great to hear about your impact, thesis and approach. You mentioned who you work with, and you said usually it’s in the beginning, but can you share a little bit more about what stage typical clients come to you at? 

Rehana Nathoo: Yeah, of course. I appreciate the question because it gets more and more complicated as this work gets more and more ubiquitous, which is a really nice problem to have.

It’s an important question because people come to this space with very different ideas about what it is and what it is not. Our clients typically are very, we call them impact curious, but not experts. They know a little bit about impact investing or ESG or sustainability. They usually have discreet activities that are trying to make positive change and feel out of touch with the fact that their investments do not.

A lot of our clients come with 15, 20, sometimes 150, 200 years of philanthropy expertise. It’s never really translated into the family office or the private assets or the foundation. Most of the people who walk in our door have heard the term Impact investing or ESG, or values based. They’re just not sure what it is and what it looks like for them.

And I think the biggest takeaway for me, across the career I had before starting Spectrum was that many organizations deal with the same strategic barriers, regardless of how different they are as organizations. They could be big, small, public, private. And yet the things that stop us from doing really compelling impact are actually quite similar. So we try and spend a lot of time taking folks through what you so beautifully articulated, that process of discovery of what are you actually interested in? What are your constraints? Let’s have an honest conversation about what you’re not going to do. Do you want to go at it alone? Would you like some help finding a partner? A lot of the process comes down to the kind of discovery that so many of our domains require. It’s just done in a strategic framework. 

Lori Choi: Love that. Yes, that’s great. And you work with multiple parties, I’m guessing, through this stakeholder process.

Rehana Nathoo: This is a really important part of it. And Lori, I know it’s something that you and I feel equally passionate about. The biggest takeaway from the work that we’ve been doing is that to truly keep, I think, the staying capacity of these strategies, everyone who might touch this work needs to feel like they’re a part of the process.

So that’s everything from the analyst on the team to the chair of the board. It doesn’t mean that all of those people need to hold roles and responsibilities, but most people in an organization do have a theory of change on what it should look like. If you facilitate that conversation early, you might find an opportunity to work through some disagreement.

But actually the biggest surprise for us has been how much agreement there is. It’s just called something different or just a little translating that we need to do. People are more alike in their vision for change than they’re not. Bringing everybody very early on is something that we certainly find helpful. To make sure that if we, heaven forbid, have a market event or a pandemic or whatever the case may be, there’s some staying power in the work that you’re doing. 

Lori Choi: Hmm. I love that. Thank you for sharing. It looks like we have some questions in the chat. One question is to me, and it is, how do I spend my time? It is mostly responding to client requests, around specific impact themes, like renewable energy or is it around presenting opportunities?

I think it’s a mix. We have a dedicated investment team that is doing all the due diligence and sourcing opportunities out there. And there are so many of them that are great high quality opportunities these days.

I would say my time is mostly spent talking with clients and really understanding, if we just approve a fund, for example, who of my clients would this resonate with? Who is this financially appropriate for? We spend a lot of time thinking about suitability. Making sure that the size of the position, where it fits in the portfolio, is really important. A lot of the questions we walked through, previously I think it’s a mix of both, but, I think my time is, understanding from the client, what do they want to invest in, feeding that back to my investment team so that they can look for those types of opportunities. And then once it gets approved, circling back to the client, say, okay, here’s what’s available in the marketplace. How are you feeling and ready to invest? Thank you for the question, Drake.

And Rehana, we have a question for you. What is the hardest impact theme to invest in, monitor or measure impact, and ensure it’s being done. Lease to own models, for example, or lending in EMs (emerging markets)? 

Rehana Nathoo: What a great question! One of the things that can be frustrating for us is this misconception that it is hard to build an investment approach to qualitative- or non- quantitative areas, right?

So in the context of ESG, environmental, social, and governance, you often read about or hear about folks having great success, being able to demonstrate impact in the environmental piece because a lot of the things we’re doing are highly measurable, and not quite as much love goes to some of the other things that are more difficult, like how to measure someone’s quality of life. I actually think there’s been an incredible amount of research done to show that… take the COVID-19 pandemic, the companies that really invested in protocols, principles, and operations that protect their people or that make sure that decision making is diffuse and diverse actually had better, intermediate and long-term stock performance after the COVID 19 pandemic. I love that question because I think in the early days you would hear a lot of people say, if it’s easy to measure, that’s the thing to start with. Many folks on this call who built their whole life’s work around this know that’s not necessarily true. That, actually, many investment themes lend themselves well to measurement.

To answer the question that was asked, the answer for me is that some of the social norms work does make attribution pretty difficult and contribution more likely.

So in the example that I gave around the gender lens investment space, there’s so much that investing can do and there’s so much it can’t do: address decades of history, cultural norms, social norms, legal structures. And so it’s actually, I think the answer is everything is truly investible so long as there’s organizational tolerance for contribution.

And an awareness that partnerships in this work are absolutely necessary. And that doesn’t mean that it just has to be investment partners. It can also mean that if you have capital to deploy in market rate opportunities, think a little bit about partners that do other types of work that facilitate and compliment you. So that could be philanthropy, that could be government, that could be advocacy. There’s so many partners out there working on really difficult things and I think there are lots of opportunities to collaborate together. I love the question, so thank you, Drake. 

Lori Choi: Awesome. Thank you. We’ve got a question here to follow up. What role do you place on shareholder engagement in showing impact?

Yes, so thank you for the question, Leslie. This is a really important question. This is a way to have impact for sure in organizations like Green Century and others are doing wonderful work to get in front of management teams at corporations to help influence them to make change. And I think for us, that is definitely part of how you have impact on public markets along with proxy voting and ESG guidelines. I think that it’s getting harder, as many folks probably on this call know, to do shareholder engagement work. But I think that we are fully in the boat of wanting to continue to promote responsible investment and responsible practices because it’s good for the bottom line.

There are material factors that relate to a company’s financial performance. By engaging with the company to improve on these different areas that have already been shown to help them end their bottom line. It’s smart business and smart investing as well. And Rehana, you shared a great LinkedIn article yesterday around materiality. I wonder if you would share any thoughts on that. 

Rehana Nathoo: Yeah, Lori, you are in my brain. You’ve captured that perfectly. So nothing to add except that what I’m really enjoying about the conversation around materiality or the idea that non-financial factors can have financial implications, is that it’s showing up in different types of conversations.

So we’ve started to see auditors and standard setters think about materiality, but we also have been able to see it at the corporate level. I serve on boards like many of us do, and it’s becoming part of what separates good directors from bad directors. Are we thinking about how seemingly non-financial factors are actually implicating businesses? 

I think something that we say to our clients all the time who are a little more reticent about this work is that up until very recently, there isn’t a company on planet earth that doesn’t use either people or raw material to fund their bottom line. And so neither of those things are inherently financial factors.

So if we’re not thinking about how people are cared for or how those materials are cared for, we’re running quite a bit of risk that we’re not addressing. A lot of our clients who don’t feel a deep direction on the values-based piece really connect with materiality, and shareholder engagement is a great way to focus on materiality if you’re not at a position where you can really contend with your values.

Lori, can I ask you a question? I know that we’re going a little bit off script, but I think that this is important because what gets missed from the conversation is also client readiness. And I was wondering if you could speak a little bit to, what are some of the things that, for anyone on this call that’s just starting their journey, what are some of the things that you would recommend them grapple with, think about, consider- before or as they come to work with an organization like yours. What can people do at home to feel like they’re already getting on the journey before they actually found an advisor partner to work with? 

Lori Choi: Thank you. I think one of the foundational things is the belief that you can do this work. There have been many myths and messages that, as investors, we’ve had to hear that you should really just maximize return here and donate your money here. And it’s an old message. And we need to really come to the belief that you can do both and be true to your values.

And I think that we want to use all the tools in our toolkit. Investment portfolios are one of them. And why not use them as a resource to do good in the world? I have the most fun talking to individuals and families when they realize, oh, this is possible. You can actually make good returns this way- that’s exciting. And also just openness to go through that discovery process. It is the fun part in the beginning, the strategy, the thinking through what’s important to us is really quite fun. And just to see the light bulbs go off and get to see how, when we put a proposal in front of a client, or a potential client, to say, here’s how it can be, actualized and here’s a real life, situation and how we’re going to get to meet all these different buckets of goals that you have. So it’s a fun process. Thanks for the question.

I also got a question over LinkedIn. I thought maybe it’d be something to mention, and you and I can both answer this, but, what tends to be the biggest challenge for investors when translating values into practical guidelines?

I started to write back on LinkedIn, and I realized maybe we could just talk about this here. I think we talked about this beforehand, but sometimes our client’s closest held values are not always matching with their financial needs and realities. And that is hard, we want it to always be perfect and match but sometimes those things don’t match. It’s about going back to the three dimensions of the portfolio. We can’t just think about the impact piece, without considering the financial because then we will miss out on some other goals.

It’s really looking at the three buckets: asset allocation, the purpose view, and the impact intentionality around that. All these things need to coexist in order to solve this, we try to break down the different goals and purposes and see them working together. How would you answer that question, Rehana? 

Rehana Nathoo: I agree completely, Lori. There’s something that you said in your presentation that has become a key principle for us in our conversations, which is that the greatness about impact investing and values-based work is to look at the interventions.

If you have the privilege of building a portfolio impact at the portfolio level has so much potential that we don’t talk about. And I think a lot of our clients think that you can only have impact in certain asset classes or certain types of opportunities. And that’s not just been our experience. You could have impact across the entire portfolio. It’s not going to look the same in each piece of the portfolio. And so I think the biggest learning challenge we have is to take folks through that journey, that impact in the public equities versus private debt are always going to look really different based on a level of abstraction, engagement, size of the investment. But both can be impact. And so just if you happen to be on this journey and you’re trying to educate yourself, I think that’s a really big important nut to crack.

And then once clients get there, I’m sure you have this exact same experience. It becomes a lot of fun to try and build an entire portfolio level solution to a problem. 

Lori Choi: Yes, exactly. Awesome. All right. We have another question. As AI adoption accelerates across industries, how are we evaluating strategies for human capital management and are there any resources or metrics we should be monitoring?

Rehana Nathoo: It’s a great question. I by no means profess to be an AI expert. I think like so many of us getting up the learning curve, but something that, I’ve really enjoyed, about what I’ve been reading around AI, human capital management, and the ESG framework, which sort of creates some room for this, is a reminder that even in impact, we have negative externalities all over the place.

So we do things today that might specifically address a certain sector. And accidentally or inadvertently harm another. I was telling Lori about an example from our portfolio that crosses traditional oil and gas production with jobs for women that come from disadvantaged communities in places like Canada where I’m from.

Clients of ours that are really interested in renewables might decide to divest entirely from the oil and gas sector in Canada. But if they also have gender lens goals, they may inadvertently take jobs out of a sector that is trying to retrain women who are trying to get oil and gas jobs. Even before AI, negative externalities abound. The thing that I have really appreciated hearing is that the materiality framework ensures that if human capital management, quality of work, and quality of training are really important to you then build a portfolio with that in mind.

And that might mean that you would find yourself in some sectors that inadvertently, or at least at a higher level of abstraction, make you uncomfortable. But the materiality piece is what makes sure that your primary values and goals are sitting right up at the top. There are a couple of really great communities actively doing research right now on the AI plus Human Capital Management, ESG piece.

There are actually a couple of reports coming out at the end of the year that will give us more frameworks and reasoning on this topic. So stay tuned. Lots of folks are trying to tackle this issue. 

Lori Choi: I love that. And also I know our investments team at Veris is hard at work on a couple of resources around AI and impact investing. So stay tuned for that too.

As we wrap up, just want to thank you Rehana, for sharing this time with us and for everyone on this call, we’ve loved having you with us. And thank you for your questions. Rehana, how can people stay in touch with you and where can they find more information? 

Rehana Nathoo: You can find me on LinkedIn. Our website is www.spectrum-impact.com. You can also email me at rehanan@spectrum-impact.com. And on our website, if you head to the resources section, we have a free strategy toolkit that helps you get started building your strategy. You don’t have to give us an email address, you just download it and you’re off to the races.

Lori Choi: Thank you. And feel free to reach out to me as well, lchoi@veriswp.com. We will be sending out resources that we’ve walked through today as a follow up to everyone who’s registered. Thank you again for being here. We’d love to continue the conversation with you to learn more, dig a little deeper on how we can help you, or your family, or organization.

Thank you very much. Have a great day!