April 24, 2024

Six Trends in Sustainable, ESG, and Impact Investing

Despite politicization and anti-ESG and anti-DEI rhetoric, I believe investor interest in sustainable, socially responsible, and impact investment is on the rise.¹ The ESG and impact investing industry continues on a path to the mainstream, as I predicted in my last article on impact investing trends in 2022.

I still believe now, as I did then, that ESG and DEI mitigate risk and help identify long-term investment opportunities and returns. A growing number of investors seem to share that belief.

From what I am seeing, more and more asset owners are asking advisory firms how they can align 100% of their assets to values. According to a recent poll conducted by Morgan Stanley Institute for Sustainable Investing and Morgan Stanley Wealth Management, 77% of individual investors globally are interested in investing in companies and funds that aim to achieve market-rate financial returns while also considering positive social and/or environmental impact and 54% say they anticipate increasing allocation to sustainable investments in the next year.² 

Where will these trends lead? Here are six topics that I believe will shape the sustainable and impact investing industry in 2024 and beyond.

Regulatory Changes

Topics like climate and socio-economic challenges will be on the ballot in 2024 as ~49% of the global population – including voters from over 64 countries – head to the polls.³ The outcomes of these elections will help determine the policies that will either be favorable or unfavorable to sustainable investing.

We have already seen policy tailwinds in the past two years. The US SEC adopted the Climate Disclosure bill on March 6, 2024, which requires standardized disclosures and assurance requirements on material Scope 1 and 2 emissions as well as climate related risks and risk management that can have significant impact on business strategy, operations and financial outcomes, which will help investors in decision making. 

The SEC’s Climate Disclosure bill doesn’t require Scope 3 emissions reporting and deviates from the EU Corporate Sustainability Reporting Directive (CSRD) and California’s climate disclosure bills: SB-253 (Climate Corporate Data Accountability Act) and SB-261 (Greenhouse gasses: climate-related financial risk). However, the EU’s CSRD requires disclosures on double materiality (both financial and impact) that cover various environmental, social and governance topics including Scope 1, 2 and 3 emissions and this will apply to over 50,000 public and private companies including many US companies.⁴ I believe all these, including the International Financial Reporting Standards Foundation’s disclosure recommendations, will further enhance standardized disclosures and will help facilitate an apples-to-apples comparison of companies. However, we need convergence and harmonization of these various requirements so that companies are clear on reporting requirements globally.

To use ESG and DEI or not to use ESG and DEI

Election year brings heightened focus on ESG and DEI and many large investment firms have stopped using these two terminologies or are walking back their climate and DEI commitments.⁵ But some corporations are still indicating why ESG and DEI are important to them, and consumer demand is clear on sustainable products from sustainable companies.⁶ Corporates are continuing with their efforts in identifying material ESG factors and making changes to their policies, practices and operations to improve their financial outcomes. In a survey conducted by KPMG in early 2024, a significant number of CEOs named “executing ESG initiatives” as their top operational priority over the next year and a majority of those executives said that they expect to see significant returns from their investments in sustainability within the next three to five years.⁷

The SEC adopted the Names Rule in 2022 which requires funds that use ESG in the name to invest at least 80% of the value of its assets in alignment with ESG factors.⁸ There have been similar regulations in Europe which have helped asset allocators identify sustainable funds that are intentional and authentic and improved the rigor of funds that invest in sustainable companies. The silver lining is that this helps funds and managers that are authentic and intentional about ESG and DEI stand out and continue to innovate. At Veris, we continue to use these terminologies.

Intersectionality of Climate, Racial & Gender Equity, and Economic Justice

Climate solutions and getting to net zero emissions continues to be an important topic for many impact investors on the back of one of the hottest years on record along with higher frequency and severity of weather conditions including hurricanes, flooding, heat waves, drought etc. and wildfires in 2023. However, we cannot look at climate solutions as a standalone impact area.

The climate crisis impacts certain communities, including women, people of color, coastal and low-and moderate-income communities, more than others.⁹ The elderly, women, children, and blue-collar workers are impacted more by heat waves or other severe conditions.¹⁰ Some insurance companies have decided to not insure homes in California and Florida. This will impact low- and moderate-income communities more as competition decreases.

At Veris, we look at the intersectionality of climate, racial & gender equity and economic justice through the lens of a Just Transition Investment Framework. Innovation and allocation to investments that aim to mitigate or adapt to climate change and efforts designed to ensure that members and communities that are disproportionately affected by climate risks are part of the decision-making process and participate in the economic upside will be critical over the coming decades. We are excited about the allocation of the Greenhouse Gas Reduction Fund from the Inflation Reduction Act and the current administration’s Justice 40 initiatives that we believe will help us achieve a Just Transition.

Artificial Intelligence (AI) and Sustainable Investing

AI and generative AI seems to be the topic that every investor wants to talk about given the meteoric rise in the stock price of Nvidia and valuation of Open AI and peers. The euphoria around generative AI has propelled the global stock market forward and many private market funds are also investing in AI opportunities.¹¹ This raises questions around various topics like morality and ethics in AI and technology, impact on jobs and productivity, discrimination against communities of color, data privacy, the use of biometric data, copyright infringement, surveillance state, fake news, manipulated elections, fraud, etc. The EU has proposed an AI Act around governance framework for ethical AI product development and model training.¹²

AI could shape the future of sustainable investing. AI can enhance sustainability reporting and data analytics and due diligence, help with implementation of corporate ESG strategy, operational efficiencies and drive reduction in consumptions and GHG emissions through acceleration in science and new materials, etc. However, we are in the early innings of the rollout of AI, and we believe we need robust governance structures to ensure that the use of AI results in an equitable, just and sustainable world.

The Future of Impact Measurement and Management

Lack of transparency and trust in reported data continue to improve but there are still concerns about authenticity or greenwashing. We believe various regulations and bills mentioned earlier have helped or will help alleviate some of these concerns.

Since the EU Sustainable Finance Disclosure Regulation enforcement started in March 2021, asset managers have been required to provide more information on sustainability risks, how they incorporate environmental or social characteristics in their investments, and impact of their investment products. This has shifted the availability of data as well as rigor. Many investment managers are now reporting impact metrics and we would like them to report impact outcomes.

Standardization and assurance requirements of the SEC’s Climate Disclosures rules and various frameworks, metrics and firms that have propped up over the years have helped to verify authenticity of impact investments but much needs to be done.

Innovation

The impact investing industry has historically been innovative and collaborative. Many innovative investments products focused on employee ownership, decarceration, climate justice, regenerative agriculture, climate adaptation and decarbonization of hard to abate sectors, have come to market in recent years. These products have the potential to make an immense positive environmental and social impact.

In the last few years, Veris has adopted our EDI manager due diligence framework and the Just Transition Investment Framework which are designed to help our clients allocate their investments to create a more equitable, just, and sustainable world.

We believe that initiatives like Due Diligence 2.0, 2X Global and Tara Health Foundation’s Diverse Investing Collective have helped improve allocation to diverse and first-time fund managers. It is our view that the combination of innovative products and commitments will help tackle inequality, and other global challenges as well, through capital markets.

Veris is excited to be part of this ecosystem by working with asset owners, investment managers, and data and solution providers.

Looking Beyond 2024

We live in a world that is full of volatility, uncertainty, complexity, and ambiguity (VUCA) with wars, partisanship, and political turmoil not just in the US but globally, and anti-ESG and DEI attacks, but the trends highlighted shows that momentum is strong. I believe investors have higher conviction in ESG, DEI, and impact investing now more than ever, and I expect that both interest and momentum will continue to grow in the future. 

Roraj Pradhananga is a Partner, Co-CIO, and Managing Director, Investments at Veris. 

1. https://www.researchandmarkets.com/reports/5938513/impact-investing-market-global-industry-size
2. https://www.morganstanley.com/ideas/sustainable-investing-on-the-rise
3. https://time.com/6550920/world-elections-2024/
4. https://finance.ec.europa.eu/capital-markets-union-and-financial-markets/company-reporting-and-auditing/company-reporting/corporate-sustainability-reporting_en
5. https://www.nytimes.com/2024/01/13/business/dealbook/dei-goes-quiet.html
6. https://www.mckinsey.com/industries/consumer-packaged-goods/our-insights/consumers-care-about-sustainability-and-back-it-up-with-their-wallets
7. https://kpmg.com/us/en/articles/2024/kpmg-2024-ceo-outlook-pulse-survey.html
8. https://www.sec.gov/news/press-release/2023-188
9. https://www.epa.gov/newsreleases/epa-report-shows-disproportionate-impacts-climate-change-socially-vulnerable
10. https://news.stanford.edu/2023/08/14/heat-affects-vulnerable/#:~:text=Extreme%20heat%20threatens%20the%20physical,can%20also%20spark%20climate%20anxiety.
11. https://www.forbes.com/sites/neilsahota/2024/02/07/futuristic-finance-ais-seductive-power-in-reshaping-private-equity/#:~:text=Some%20private%20equity%20firms%20have,identify%20and%20evaluate%20potential%20investments.
12. https://digital-strategy.ec.europa.eu/en/policies/regulatory-framework-ai

Disclaimer

The information contained herein is provided for informational purposes only and should not be construed as the provision of personalized investment advice, or an offer to sell or the solicitation of any offer to buy any securities. Rather, the contents including, without limitation, any forecasts and projections, simply reflect the opinions and views of the authors. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change without notice. There is no guarantee that the views and opinions expressed herein will come to pass. Additionally, this document contains information derived from third party sources. Although we believe these third-party sources to be reliable, we make no representations as to the accuracy or completeness of any information derived from such third-party sources and take no responsibility, therefore.

Veris WP
March 11, 2024

Veris CEO Stephanie Cohn Rupp Interviewed About Sustainable Investing on Fintech TV

Remy Blaire interviewed Veris’ CEO Stephanie Cohn Rupp about sustainable investing for Fintech TV in March of 2024. 

Transcript of the Interview

Remy Blaire: Welcome to Impact TV, I’m Remy Blaire. Investing can achieve social and environmental benefits all while generating financial returns. Joining me today is Stephanie Cohn Rupp, CEO of Veris Wealth Partners, a Certified B Corp. Stephanie, thank you so much for joining me today. 

Stephanie Cohn Rupp: Thank you for having me. 

Remy Blaire: 2024 is well underway and…there are areas of opportunities that may be supportive of sustainability efforts and are also aligned with impact. What are the important themes that you’re paying attention to this year?

Stephanie Cohn Rupp: Two big themes are climate solutions and what we call DEIB: diversity equity, inclusion, and belonging. The overlap of these two themes is what we call climate justice. We believe there are plenty of opportunities out there. There are great new technologies and innovative funds (including) interesting funds that are focused on inclusion. Because we believe that investors are not impartial and it’s important to understand inherent biases to make optimal investment solutions. And so, one of our themes is inclusion, which doesn’t mean quotas, doesn’t mean excluding anybody. It means providing more opportunity and investing more broadly into entrepreneurs throughout the United States. 

Remy Blaire: Adaptation, resilience, and response to climate and weather events is very real for many regions and communities around the globe. In terms of what you’re hearing from your clients about their commitments to sustainable investing. Can you give us a little bit of insight?

Stephanie Cohn Rupp: Our approach is truly across asset classes; we don’t believe there’s a golden bullet or silver bullet that will give you a single solution. We look throughout the portfolio and see how we can advance the values of our clients. And not all clients agree. You can use exclusion in public equities. You can divest from certain companies; you can invest with certain technology companies on the clean tech side and transition side. You can invest in certain companies that are in oil and gas and engage with them. There’s no need to look at these sectors as demonic — they have to be part of this solution. 

And then we go, from asset class to asset class, into ESG integrated funds where there are certain theories of change that are held by the fund manager. And then on the alternative side – whether it’s private equity, venture, or private debt – looking at solutions where you’re investing directly into regenerative agriculture, sustainable forestry, or in clean tech funds et cetera — it really runs the gamut. We think these solutions need to be integral to the portfolio in all asset classes. There is no single solution. The other thing is there are a lot of disagreements. Some clients believe in nuclear energy, some believe it’s the devil. The how is very specific to the values and the identity of the asset owner. 

Remy Blaire: And Stephanie, the great wealth transfer is something we will all be paying attention to as trillions of dollars transfer hands. So tell me what you see when it comes to millennials and Gen Z, in terms of wealth management and impact orientation. 

Stephanie Cohn Rupp: I am a little counter to the mainstream thinking on this. I think it’s a gender issue and not a generational issue. We have clients who are values driven, who are phenomenal and knowledgeable about all these solutions and they’re 72 years old. And then we have clients in their twenties, thirties, forties, fifties, who really care about values investing. So, I don’t find it to be a generational thing. 

I think everyone is getting into the sector and understanding climate change is an existential threat to humanity. And so, whether you are grandparents or are just graduating from college, the issue is salient. What I have found though, and this is much more anecdotal, but in the client base, the women are often the most passionate about poverty alleviation, economic development, and fighting climate change.  

I wrote an article a few months ago (ESG Critics Are On The Wrong Side of History) after looking at whether high net worth women, both Democratic and Republican, care about climate issues. And (polling data indicates that) Republican women care about climate as much as Democratic women care about climate.1 So I do think there’s much more consciousness and I would say an eagerness to act from women than from men, from the experiences that I have had at Veris Wealth Partners. 

Remy Blaire: And private markets represent opportunities to drive impact while also adding diversification portfolios. It does go without saying that it’s vital to consider investments in the portfolio context — diversifying across different approaches and asset classes. So, what does it mean to invest for impact across asset classes?

Stephanie Cohn Rupp: We have different methods for each of the different asset classes and sub-asset classes. We don’t invest in commodities, and we also don’t invest in crypto. I can quickly go through the asset classes. On the public side, you can negatively screen – take out the companies you don’t like – maybe it’s pornography, maybe it’s guns – it really depends on the values of the individual. Otherwise, you can positively tilt for the companies and industry you really believe in you can go overweight on. Then you can choose active strategies in the public equity side, where the manager actively engages with companies – there’s a certain degree of change. And then there’s private debt – investing in (for example) loan funds that invest in entrepreneurs in inner cities, who invest in entrepreneurs who are Indigenous, who invest in entrepreneurs who have been forgotten by the financial system as we know it. On the private equity side, we have all sorts of interesting strategies as well. These could be focused on climate, on wealth building, on women as entrepreneurs and beneficiaries, or generally about inclusion. And then the final piece is on the venture capital side so those are the longer lockups and higher risk investments into funds that do incredible work backing social entrepreneurs who really care about changing the world as we know it. (For example) a very interesting strategy around wealth building using ESOPs… So, it really runs the gamut. You can really use all the levels within a portfolio for it to be values aligned. 

Remy Blaire: And Stephanie, last but not least, before we let you go, we are seeing plenty of turbulence in geopolitics. Then we’re also seeing plenty of stress in the post pandemic global landscape. We’ve also been seeing upheaval when it comes to ESG, as well as DEI practices. What is your view in terms of DEI and the wealth management industry, and what do you think of the rule for wealth managers out there? 

Stephanie Cohn Rupp: I think there’s a lot of misunderstanding, both in the world of ESG and the world (in general) about DEI. ESG truly is about values aligned investing. I have met pro-life values aligned investors and pro-choice values aligned investors. ESG is really not only a certain monolithic view of the world. What it is, truly, is aligning your investments with your values.

You care about how you vote, what car you drive, how you eat – people express their identity through a whole host of things. What we’re saying in my industry is you should also own what you own from a financial perspective because there are real world impacts. This is not “woke finance.” I think that is a great misunderstanding. It is values alignment. The Koch brothers are conservative, but they are also values-aligned investors. It is agnostic in a lot of ways, but I think there’s a misnomer that it’s only extremely left because you have a lot of actions against the traditional extractive industries like oil and gas. 

On the DEI side, I also think what’s important to understand is that there are historical wrongs. Currently 7.7% of the population of the United States is comprised of African-American women and only 0.3% of all the venture capital funds – including billions of dollars invested in venture capital – only 0.3% goes to African-American women. The movement is not saying, “Let’s not invest in men, let’s not invest in Caucasian women,” It’s just saying, if you believe that talent is equally distributed, you should be investing in a way that is equally distributed. And so, it’s much more about inclusion than exclusion. And I think there’s a lot of fear and a mentality of scarcity thinking if we invest in certain minorities or certain populations we’re divesting, we’re giving less to others. And actually, that couldn’t be farther from the truth. Everybody benefits in the United States when the economy is booming, when there’s greater investment, therefore greater consumption. I think we really have to get away from that zero-sum game mentality. Diversity is not about that. It’s not about zero-sum games. It’s really about raising all boats and trying to ensure that everybody’s included in the economy, so everybody wins. That is fundamentally at the heart of the movement. 

Remy Blaire: Well, Stephanie, I think it’s really important to make that distinction. So thank you so much for clarifying that. Thank you so much for joining me today. 

Stephanie Cohn Rupp: Thank you so much for your time. It was a pleasure.

Note: This transcript was lightly edited for clarity and length. 

References

1 https://www.pewresearch.org/science/2019/11/25/u-s-public-views-on-climate-and-energy/ps_11-25-19_climate-energy-00-014/

2 https://cawp.rutgers.edu/black-women-elective-office#:~:text=Black%20women%20are%207.7%25%20of,according%20to%20the%20U.S.%20Census.

3 https://www.weforum.org/agenda/2023/03/the-ebb-and-flow-of-vc-funding-how-to-support-black-women-in-business/#

Veris WP
December 18, 2023

2023 End of Year Letter From Veris CIO Michael Lent

By Michael Lent, Co-founder and CIO of Veris Wealth Partners 

This letter was originally published as part of Veris’ 2023 Impact Report.

I write this at a time of great turbulence in the world. We are seeing acts of violence and warfare, extreme partisanship and political turmoil, and a barrage of attacks on ESG investing and DEI practices. 

It can sometimes be hard to feel hopeful in this period, but I still believe that progress is being made and that impact investors are making meaningful contributions towards solving social and environmental challenges.  

Despite the turbulence, the US economy has been doing fairly well,¹ workers have been gaining at the bargaining table,² and the energy transition is moving forward³ (albeit at a slower pace than we would like to see). 

Silver Linings 

In my view, the attacks on ESG and DEI present an opportunity for us to determine who in the investment field is authentically committed to these issues and who is not. For example, some mutual funds and ETFs have stopped marketing themselves as ESG or Sustainable because they were not truly committed to an authentic process and instead were greenwashing.⁴ 

The SEC recently adopted the Names Rule which requires funds that use ESG in the name invest at least 80% of the value of its assets in alignment with ESG factors.⁵ It appears that some asset managers and investors do not want to stand up to the scrutiny of the Republican AGs and House committees and have stopped using ESG or DEI in fund names even if they continue to offer investment options in this area.  

However, those funds and managers that are committed to ESG and DEI are staying the course and continuing to innovate, deepen their analysis, and move our field forward.⁶    

Challenges We Are Facing on the Route to a Decarbonized Economy

It is important to recognize that it has been a difficult market environment for ESG and Impact Investors as well. The traditional energy sector (oil and gas), which is one of the largest contributors to climate change, has been one of the best performing areas of the public equity markets over the past three years due to the Russian invasion of Ukraine, OPEC+ supply constraints coming from Saudi Arabia and Russia, and the emerging Middle East Conflict.⁷  

Renewable energy stocks have underperformed during the same time due to their high capital requirements, higher borrowing costs, and increased cost of inputs.⁸ ⁹

This has had an impact on portfolios that are fossil fuel free and low carbon. Some environmental thematic equity managers and funds have had some short-term underperformance. However, we see this as a short-term phenomenon. Over the past ten years traditional energy stocks have been the worst performing sector of the market. 

S&P 500 GICS Sectors Annualized 10-year Risk/Return. Source: Morningstar 2023

The US Inflation Reduction Act, the Chinese commitment to significant investment in solar power and Electric Vehicles, the need for Europe to become less dependent on natural gas and the innovations in energy efficiency and other low carbon options will likely provide a tailwind over the medium term. 

We think the current challenge is bringing together the desire to decarbonize the economy with a just transition that addresses frontline community needs and the need for POC and labor to participate in the economy of the future. Our report highlights our Just Transition Investment Framework and two investment examples. We are committed to identifying more options in the next several years as we see this as one of the most important contributions impact investors can make. 

Progress Towards Our Firm’s Equity, Diversity, and Inclusion Goals

Veris has made a commitment to continue to bring EDI managers on our platform and work with our current managers to encourage progress in this area. See our firm’s report on Investing in Diversity, Equity, Inclusion, and Belonging for more information about our approach. 

Despite the attacks on DEI, we have been able to identify new opportunities for investing with DEI managers: both diverse teams and those using a DEI investing lens.

We have brought to our platform several excellent EDI managers, some of whom are first-time fund managers. Investing in first-time EDI managers is critical to ensure that the field becomes more diverse in the future. As we have outlined in this report our engagements with our approved managers have resulted in better EDI-specific data collection and we are seeing improvement in the diversity of metrics and disclosures. While these improvements are important, we are committed to making further progress to meet our goals.

Our Work Continues 

Since the very beginning of our firm’s history, Veris has had a vision to build a more just, equitable, and sustainable world through our investments and our practices. The challenges the world is facing require bold and innovative approaches. We are not daunted by the most recent challenges and see that they create new opportunities. 

I thank our Managing Director of Investments, Roraj Pradhananga and his Investments Team for the excellent work they are doing in advancing our impact investing research and continuing to innovate to achieve our vision.

Michael Lent

Chief Investment Officer and Founding Partner

Veris’ 2023 Impact Report is available for download here. 

Veris Wealth Partners annual impact report for 2023. Featuring highlights of the social and environmental impact of our clients' investments and shareholder activism. Also features the debut of our Climate Justice Investing Framework.

References

1 https://www.bea.gov/news/2023/gross-domestic-product-third-quarter-2023-advance-estimate

2 https://www.bloomberg.com/news/articles/2023-10-28/uaw-aims-to-announce-stellantis-deal-saturday-as-talks-finish-up

3 https://www.bloomberg.com/news/articles/2023-01-26/global-clean-energy-investments-match-fossil-fuel-for-first-time

4 https://www.morningstar.com/sustainable-investing/sec-targets-greenwashing-with-dws-investments-settlement-names-rule

5 https://www.morningstar.com/sustainable-investing/sec-targets-greenwashing-with-dws-investments-settlement-names-rule

6 www.institutionalinvestor.com/article/2cdc8zv066plxdq1p83cw/culture/how-the-fearless-fund-lawsuit-is-provoking-outrage-new-dei-strategies-and-renewed-commitment

7 https://www.bloomberg.com/news/articles/2023-10-20/energy-stocks-keep-rising-after-middle-east-tensions-widen

8 https://www.ctvc.co/spooky-season-for-clean-energy-stocks-171/

9 https://www.bloomberg.com/news/articles/2023-10-20/a-5-bond-yield-means-280-billion-green-stocks-rout-will-worsen

This content is intended for informational purposes only, provides only a summary of topics discussed, does not constitute personalized investment advice or recommendations, and solely reflects the opinions of Veris Wealth Partners (“Veris”), which are subject to change without notice. The information contained in this document contains certain forward-looking statements, often characterized by words such as “believes,” “anticipates,” “plans,” “expects,” “projects,” and other similar words, that indicate future possibilities. Due to known and unknown risks, other uncertainties and factors, actual results may differ materially from the expectations portrayed in such forward-looking statements.

Certain information contained herein is derived from third party sources. While Veris believes such information to be accurate, we have not independently verified the accuracy or completeness of such information.

Veris WP
October 30, 2023

Impact Focus Q3 2023: Inflation, Interest Rates, and Corporate Profits

By Jane Swan, CFA

In the hours approaching the end of the third quarter of 2023, Congress passed a bipartisan 45-day funding bill, temporarily preventing a government shutdown. At the time, President Biden prematurely expressed optimism for continuing engagement with Speaker McCarthy in a bipartisan process to approve a budget, including ongoing aid to Ukraine.1 Within two days, Representative Gaetz of Florida began the process of removing McCarthy as Speaker. That effort succeeded on October 3rd.  The need to organize new leadership and pass a budget was eclipsed by the humanitarian crisis in Israel and Gaza. 

Three weeks and three failed speaker candidates later, the Republican House majority elected far-right Republican Mike Johnson. Mike Johnson supported and played a key role in former President Trump’s effort to undermine the results of the 2020 election. The new Speaker could drive further uncertainty in policymaking as bipartisanship will be further out of reach. 

The need for leadership and the importance of passing a budget is crucial for maintaining a stable economy and providing financial, humanitarian, and diplomatic support to Ukraine and now also in the Middle East. Additionally, inflation continues to infuse the economy, markets, and consumers with increasing uncertainty. 

In this impact-focused review of Q3 2023, we will pay close attention to the relationships between income inequality, inflation, and corporate profits. You can read our overview of economic and market activity in Q3 here. 

For several reasons, inflation has a greater impact on low-income, low-wealth families than those with higher incomes or high wealth. Non-discretionary items like food, housing, and fuel tend to make up a higher percentage of their household spending.2 Families with more financial privileges can cope with inflation through prudent choices, such as buying generic rather than luxury brands, reducing travel and restaurant consumption, as well as limiting retail choices.3 Over the last 20 months, the Federal Reserve (The Fed) has aggressively raised interest rates, making 11 hikes for a total increase of 5%. In doing so, Fed officials have often cited the disproportionate impact inflation has on low-income families.4

However, when we look at how inflation hurts low-income families, interest rate hikes frame a scenario where the cure is potentially worse than the disease. When interest rate hikes discourage spending, the result can be an increase in unemployment. This harms workers who lose jobs, as well as the ability for employed people to demand higher wages.5 Historically, women and Black workers have faced the greatest obstacles to employment in periods of high unemployment.6  

The negative impact for low-income families goes beyond potential employment risks.

The bottom 80% of households have depleted most of their excess savings and are taking on more debt.7 Default rates on auto loans are higher now than at any point in recorded history.8 Borrowers with high credit scores may feel current new car loan rates around 5% are high, but that pales in comparison to rates over 14% which are paid by people with low credit scores through subprime loans, which were one of the reasons for the housing market crash in 2007 and 2008.9 The ongoing high interest rates impact low-income households through obvious consequences like interest charges on credit card debt. Additionally, higher interest rates make home ownership even more unattainable to low-income borrowers with less available for down payments, requiring them to finance a higher percentage of home purchases.10 The link between the wealth gap and homeownership is examined in our DEIB Investing report, published this fall. 

Looking at income by decile (5 groups, each representing 20% of income groups) we see that while income has been relatively flat for the bottom 60% of income earners, it has grown steadily for those between 61 and 80%, and sharply for the top 20% of income earners.11 

Suppressed wage growth for lower earners over recent decades makes these populations simultaneously vulnerable to inflation and high interest rates. While wage growth on average has been higher through the COVID recovery and high inflation period, it is estimated that it will take another year for those wage hikes to make up for the negative income effect of inflation. 

As The Fed works to combat inflation, we believe it is important to examine how prices are set, and some potential causes of inflation. A producer of goods and services usually sets a price based on the costs of production (including labor) and marks up the price to add a profit. If they include too much profit in the price, consumers may look for substitute goods. If consumers choose substitute goods, the producer may decide to reduce the profit from each unit sold to attract more consumers. This is the supply/demand relationship. When wage increases lead to increases in prices and higher inflation, workers are likely to demand even higher wages. This is known as the wage-price spiral.

At the first signs of inflation in 2021, The Fed and many analysts expected that the inflation was “transitory” or temporary.12 Supply chain and a tight labor market were seen as temporary problems that would resolve with remedies to supply-chain constraints and stabilization of the tight labor market.13 As high inflation has persisted beyond the period of significant supply chain constraints and as wages have grown less than inflation, analysis in 2023 has increasingly included examination of increasing corporate profits as a significant contributor to inflation. In February of 2023, The Fed was pointing to signs that the wage growth was moderating and began to shift some focus to what they called “The wage-price spiral.”14

graph depicting markup, post tax

The “Mark Up” in prices, which increased during and after COVID has protected corporate earnings while contributing to inflation.15 

From 2020 to 2022, non-labor cost changes as a component of increasing prices stayed about the same as they were from 2007-2019, changing from 28.6% pre-COVID to 32.3% during and after COVID. Comparing these same time periods, unit labor costs as a component of increasing prices actually went down from 58.4% to 32.8% during and after COVID.

The biggest change in contributions to iBar graph depicting contributions to increasing pricesncreasing prices came from profits, which were 13.1% of contributions to increasing prices before the pandemic but have been 34.4% of contributions to profits in the years that followed.

Unless corporations reduce prices to reflect improving supply chains and lower prices of inputs, low-income families will not benefit from real wage growth as the rate of inflation subsides. Otherwise, the only beneficiaries are owners and shareholders of these companies. 

All investors, including impact investors, benefit from and are protected by increasing prices. Some impact investors attempt to distinguish ourselves by examining these relationships and exploring and including alternate investments which aim to remedy some of the externalities in our financial systems. Notes in Community Development Financial Institutions (CDFIs) and CDs with Credit Unions can reduce the negative impact of high interest rates on low-income communities by offering subsidized or low-interest loans to borrowers often excluded from traditional bank loans. Some impact investors make investments in companies that seek to remedy inequities in how credit scores ratings are set, taking action towards leveling the playing field. 

For more information on impact solutions to the problems of inflation and high interest rates, please see our DEIB Investing Report or speak to your advisor.  

Author

Jane Swan is a Partner & Senior Advisor at Veris Wealth Partners and a Chartered Financial Analyst (CFA®). 

Sources

  1. https://www.whitehouse.gov/briefing-room/statements-releases/2023/09/30/statement-from-president-joe-biden-on-passage-of-the-bipartisan-bill-to-keep-the-government-open/
  2. https://www.dallasfed.org/research/economics/2023/0110#:~:text=Prior%20research%20suggests%20that%20inflation,few%20ways%20to%20reduce%20spending%20.
  3. https://www.minneapolisfed.org/article/2022/as-inflation-rises-low-income-households-grapple-with-particular-challenges
  4. https://ny1.com/nyc/all-boroughs/news/2022/01/11/fed-chair-jerome-powell-inflation-covid-jobs , https://www.stlouisfed.org/publications/bridges/2023/vol3/how-low-moderate-income-households-are-coping-inflation
  5. https://time.com/6253699/federal-reserve-inflation-interest-rates-workers/
  6. https://www.chicagobooth.edu/review/why-rising-interest-rates-could-particularly-hurt-black-workers-women
  7. https://www.bloomberg.com/news/articles/2023-09-25/only-richest-20-of-americans-still-have-excess-pandemic-savings
  8. https://www.bloomberg.com/news/articles/2023-10-21/high-car-loan-interest-rate-payments-americans-struggle-with-monthly-bills
  9. https://www.bankrate.com/loans/auto-loans/average-car-loan-interest-rates-by-credit-score/#average
  10. https://www.npr.org/2023/02/26/1159615312/interest-rate-hikes-widen-the-wealth-gap-an-economist-argues
  11. FRED: Income Before Taxes: Wages and Salaries by Quintiles of Income Before Taxes: By Decile, U.S. Dollars, Annual, Not Seasonally Adjusted
  12. https://www.federalreserve.gov/mediacenter/files/FOMCpresconf20210317.pdf
  13. https://www.nytimes.com/2023/04/07/business/economy/wages-prices.html
  14. https://www.imf.org/en/Blogs/Articles/2023/02/24/wage-price-spiral-risks-still-contained-latest-data-suggests
  15. https://www.epi.org/blog/even-with-todays-slowdown-profit-growth-remains-a-big-driver-of-inflation-in-recent-years-corporate-profits-have-contributed-to-more-than-a-third-of-price-growth/
  16. Ibid

Disclaimer

The information contained herein is provided for informational purposes only and should not be construed as the provision of personalized investment advice, or an offer to sell or the solicitation of any offer to buy any securities. Rather, the contents including, without limitation, any forecasts and projections, simply reflect the opinions and views of the authors.

All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change without notice. There is no guarantee that the views and opinions expressed herein will come to pass. Additionally, this document contains information derived from third party sources. Although we believe these third-party sources to be reliable, we make no representations as to the accuracy or completeness of any information derived from such third party sources and take no responsibility therefore. Information related to the performance of certain benchmark indices is provided for illustrative purposes only as investors cannot invest directly in an index. Past performance is not indicative of or a guarantee of future results. Investing involves risk, including the potential loss of all amounts invested.

Veris WP
Veris visited Washington D.C. Our firm's delegation to US SIF Capitol Hill Day and Member Day events share their insights.
August 1, 2023

Veris Goes to Washington: Insights from US SIF’s 2023 Capitol Hill Day & Member Day

The US Sustainable Investment Forum (US SIF) is a member-based organization, established to be the leading voice advancing sustainable investing across all asset classes. Their mission is to rapidly shift investment practices toward sustainability, focusing on long-term investment and the generation of positive social and environmental impacts.

Veris was proud to co-sponsor US SIF’s 2023 Capitol Hill Day and Member Day in Washington D.C. this summer. Our firm sent Veris CEO Stephanie Cohn Rupp; CIO Michael Lent, Managing Director of Research Roraj Pradhananga, and Director of National Client Service Karen Walls deRochemont to Washington to participate in both events. 

Roraj Pradhananga, Michael Lent, and Karen Walls of Veris Wealth Partners in front of the US Capitol building.

Roraj Pradhananga, Michael Lent, and Karen Walls of Veris Wealth Partners in front of the US Capitol building.

Capitol Hill Day Activities

As part of Capitol Hill Day, approximately 50 US SIF members met with the offices of 40 different Representatives and Senators from both sides of the aisle to help educate members of Congress on financially material Environmental, Social and Governance (ESG) factors and data and why they are important to investors, urge them to support SEC disclosure proposals around climate risk and human capital issues, ask members to support the Congressional Sustainable Caucus in the US House of Representatives and to not allow riders to be attached to the Authorization’s bills that would limit the SEC’s authority. 

The delegation from Veris spoke with congressional aides who work with members of Congress including Senators Chuck Schumer (D-NY), Senator Thom Tillis (R-NC) Corey Booker (D-NJ), Robert Menendez (D-NJ), Jeanne Shaheen (D-NH), and Maggie Hassan (D-NH), Angus King (I-ME), Michael Bennet (D-CO) and Representatives Chris Pappas (D-NH) and Ann Kuster (D-NH). 

It was an honor to walk the halls of Congress in support of our firm’s mission and our clients’ vision for the future. 

Member Day Activities

The delegation from Veris also participated in US SIF’s Member Day event, which gathers together some of the leading voices of the sustainable investment movement for knowledge sharing and field-building conversations. 

At 2023’s Member Day event, we heard remarks from Representative Sean Casten (D, IL-6), Co-Chair of the Congressional Sustainable Investment Caucus, engaged in a listening session with incoming US SIF President Maria Lettini, and heard from industry experts on topics including refocusing the narrative around anti-ESG messaging and the Environmental Protection Agency’s Greenhouse Gas Reduction Fund. 

Stephanie Cohn Rupp, CEO of Veris Wealth Partners and US SIF's Director of Education and Outreach Michael Young.

Stephanie Cohn Rupp, CEO of Veris Wealth Partners and US SIF’s Director of Education and Outreach Michael Young. 

The Veris Delegation’s 6 Major Takeaways 

1. Congressional offices are knowledgeable about ESG topics. 

During our Capitol Hill Day experience, the Veris team saw high levels of conviction and interest from legislative aides who were extremely well versed in the legislative issues around ESG topics. It was inspiring to see so many passionate young professionals who are working to educate our congressional representatives and senators about pending legislation. 

We also saw signs of progress made in terms of greater congressional awareness of relevant critical issues surrounding ESG and in the depth of the questions that had to address their concerns. For example, Senator Chuck Schumer and his aide were very aware of EU Sustainable Finance Disclosure Regulation (SFDR) and the Sustainability Accounting Standards Board (SASB). Their primary questions were around avoiding the pitfalls they have seen Europe face. They wanted our thoughts on the best approach for how to incorporate and codify disclosure rules going forward. They were digging into these topics in detail to inform decision making and rulemaking. 

Hopefully the Congressional Sustainability Investment Caucus, which was created to help inform Congress about ESG topics, will continue to look for new Representatives to join to continue to be internal advocates for these critical issues.

2. There is strong support for SEC disclosure rules. 

All the Democrats that the Veris delegation spoke with were supportive of SEC disclosure rules on Climate Risk and Human Capital Management. 

When we advocated for the passage of SEC disclosure rules, we heard aides say that they see it as a way of increasing transparency for investors so they can better understand the potential impacts of their investment. We heard some aides emphasize the need for public messaging around the potentially negative impact of not including financially material ESG factors in investment decision making. 

The primary concern we heard from our Congressional representatives around standards requiring Scope 3 emission measurement and reporting, was that the requirements might place regulatory burdens on corporations and small businesses. They are concerned about the impact on farmers and the restaurant industry especially and are seeking ways to address these issues. 

Veris' Managing Director of Research Roraj Pradhananga with members of US SIF.

Veris’ Managing Director of Research Roraj Pradhananga with members of US SIF.

3. We heard support for universal global standards. 

One major refrain we heard concerned the need for universal global standards for measurement and reporting of material ESG factors to make it easier for businesses to comply. Linda-Eling Lee, Head of ESG research at MSCI, said that it will be important to ensure that the US  standard is consistent with the regulatory framework in Europe. Universal global standards would make it easier for businesses that operate both in the US and in Europe to comply, because they would not have to abide by two separate sets of rules. 

4. US Congress members on both sides of the aisle need to hear from ESG supporters.

We heard it expressed that our field needs to have a strategy for engaging Republican members of the Senate who seem to be persuadable to vote for policies that support ESG investing. This is particularly important because there are concerns that SEC rulemaking could be blocked by attachments to the appropriation bills in September. 

We also heard from congressional staffers that Democrats need to hear from their constituents on these issues just as much as Republicans do. Hearing from constituents is very important for driving action in Congress across the political spectrum. 

As part of the conversation with Senator Mendez’s office, we discussed the fact that the House passed the Corporate Governance Improvement and Investor Protection Act, which would require disclosure of racial, gender, ethnicity of the board and C-suite members of public companies, in June of 2021 but it still hasn’t passed in the Senate. This Act includes many provisions we want to see, including disclosure on diversity, lobbying, C-Suite compensation, climate related risks, and more. Senator Menendez is pushing for more corporate governance disclosure and there is the potential for movement on that soon. If you support that, you may wish to write to your senators to express your views. 

5. We need to get better at explaining ESG. 

One of the major themes of the conversations that took place at US SIF’s Member Day event was that, as a field, we need to do a better job of explaining what ESG is and why integration of financially material ESG factors is so important in investment decision making. 

Most of the anti-ESG sentiment is broad and focuses on terminology instead of real-world concerns. Critics of ESG tend to attack the acronym in general ways – calling it “woke capitalism” instead of pointing to specific issues. 

We heard an idea expressed that the best approach would be to focus on our shared values and find ways to talk about financially material ESG factors and ESG in personal terms so that it’s more relatable. One powerful way to do this would be to offer real-world examples of environmental, social, and/or governance factors guiding decision-making. For example, increased wildfire risk due to climate change has already led at least two major insurance companies to stop offering homeowners insurance in the state of California.

Take a look at ESGtruths.com to get specific talking points to help connect with people – your friends, family, colleagues and elected representatives alike. 

6. US SIF seeks to further build the field. 

US SIF is helping to build the field of sustainable investing through research, education, media outreach, and policy advocacy. Your voice and perspective can help accelerate that work. 

If you are not already a member, consider joining US SIF. Membership is open to asset owners and asset management firms, and other types of organizations and service providers that are active in the field of sustainable and responsible investing.

If you are a member, US SIF’s New CEO Maria Lettini said at Member Day that she is actively seeking feedback on the future of the organization. She wants to hear from Members on what vision for the future we collectively want to see the organization advocating for. If you are a member, you can contact US SIF to express your ideas about the best path forward.

Disclaimer 

The information above is provided for informational purposes only, represents only a summary of topics discussed, does not constitute investment advice, and solely reflects the views of the authors, which are subject to change without notice. Additionally, this document contains information derived from third party sources. Although we believe these third-party sources to be reliable, we make no representations as to the accuracy or completeness of any information derived from such third-party sources and take no responsibility, therefore.

Although Veris has highlighted herein various initiatives relating to policy activism in which it has participated, no inference should be drawn as to the success or failure of such initiatives or the ultimate impact on the financial or impact results achieved by our clients.  

Veris WP
Water Ripple
April 23, 2019

Don’t Fall Behind – Water Is A Great Opportunity For Investors

Veris Guest Blog: By David Richardson, CFA

The theme of the UN’s annual World Water Day last month was “leave no-one behind.” This sentiment is applicable to both emerging markets and the developed world, while offering opportunities for investors in water.

The sixth sustainable development goal (SDG) from the UN is clean water and sanitation for all by 2030. The UN celebrates this day each year to call attention to this global priority and to advocate for sustainable management of freshwater resources.

While the need to develop water infrastructure in the developing world is understood, access to clean water, as the ongoing 2014 Flint, Michigan water crisis illustrates, is an issue for the developed world too.

My firm, Impax Asset Management, has been researching and investing in listed water related companies since 1999, running a dedicated strategy since 2008. In recent years, we have seen the universe of investable companies increase and an acceleration in the growth of many of its constituent companies. Climate change, pollution and a growing, increasingly urban population all drive demand that innovation and technology can help fulfil.

Governments, public bodies and private industry are all investing in new and upgraded infrastructure, and the investment momentum keeps gaining pace.

Access and changing preferences
Leaving no one behind in emerging market regions, like China, India and Sub-Sahara, largely requires the development of water infrastructure where it previously did not exist.

It is a positive development driven in no small part by urbanization, growing populations and changes in consumption patterns that demand higher standards of living. This isn’t just about access to clean water and water treatment. Many items taken for granted by urban dwellers require a significant amount of water to produce. A hamburger, for instance, requires 460 gallons (2,090 liters) of water to make.1

Aging infrastructure
A great deal of the infrastructure in the developed world is outdated, inefficient and/or struggling to meet modern water demands. This was exemplified by the Flint’s water crisis, where cost-cutting led to insufficient water treatment and lead leaching into the water supply. The project to replace the lead pipes, which commenced in 2016, continues with costs running into hundreds of millions of dollars.2

Climate change
Climate change is impacting water security. In recent years there have been a number of severe periods of drought and water shortages that have impacted farming yields, industrial productivity and meant loss of revenue for workers, such as the 2012–16 California and the 2014-2017 Brazil droughts.

Most recently, South Africa’s second largest city Cape Town, with a population of about 4 million people, suffered its own water crisis. Rainfall well below historical levels meant the City’s main reservoir was close to empty in March 2018. Cape Town residential water use was cut from about 120 liters per person per day in 2015 to 50 liters at the start of 2018.

For officials and residents in these regions, the long-term impact of climate change on water supply requires investment in a range of measures, including conservation and leak detection. Examples of other extreme weather events, like storms, represent a different priority, where protection and clean-up can be more pressing.3

An abundance of opportunities
The investment opportunities in water are surprisingly diverse and resilient. Risk characteristics are comparable to equity markets, and water runs through the global economy, across markets, sectors and regions. Water also provides attractive opportunities through the economic cycle, encompassing both defensive and cyclical businesses.

Technology and innovation play key roles in reducing water consumption. Smart meters, for example, can help utilities manage the supporting infrastructure more efficiently, and provide an early warning sign of and location of leaks. Public entities and private industry globally are investing in upgrading their infrastructure and this investment momentum looks set to continue.

Sources: 
1Friends of the Earth and Impax Asset Management ‘Investing in water: tapping into a source of resilient growth’
2Wikipedia
3The Financial Times

David Richardson, CFA®, is Executive Director of Impax Asset Management, which has more than $16 billion in assets under management.

Veris Wealth Partners
water bubble
March 24, 2019

Ellen Remmer: An Inspiring Journey About Impact Investing and Empowering Women

By Anders Ferguson, Partner

Ellen Remmer’s journey from enlightened philanthropist to impact investor is a story that can inspire all of us.

Ellen RemmerEllen grew up in a philanthropically engaged family that established a family foundation in 1990. Over the course of the past 30 years, Ellen’s vision has steadily evolved, and today she is a champion of impact investing and the opportunities to align her wealth and her values.

Recently, her mission has focused on helping women take control of their assets and invest with greater purpose and impact. Her vision manifested in a new nonprofit initiative, Invest for Better, which launched in January.

Last month, I sat down with Ellen to discuss her life’s journey. I wanted to share her experience because it speaks to the potential of investing capital to achieve both social benefit and financial gain. It’s also instructive in describing how investors can change their mind about the role and possibilities of wealth.

Developing Consciousness
Influenced by her family’s focus on the greater good through its foundation, Ellen began her career in 1990 as an advisor to philanthropic families and organizations. She primarily served families of significant wealth who wanted to be more effective donors to create positive change.

In 2000, Ellen attended a Council on Foundations meeting in NYC, where she heard a representative from the Jessie Smith Noyes Foundation talk about the idea of Mission-Related Investing. At that point, a lightbulb went off. Ellen realized that foundations can use their endowments’ capital to further their goals – a grant and invest.

This was a transformative moment for Ellen, who had always advised families to “give away” money to accomplish their mission. Ellen’s epiphany, however, was still ahead of its time. Her vision had only tepid support from advisors and co-trustees. The objections were similar to those we still hear today. “It won’t work.” “We’ll lose money.” “Not fiduciarily responsible.”

Education Is Key
Undaunted, Ellen kept pushing. In 2007, she was appointed to lead The Philanthropic Initiative(TPI), a philanthropic advisory practice for individuals, families, foundations, and businesses. In that new role, her thinking evolved further. She was responsible for identifying critical issues and trends in the field and translating them into practical advice for philanthropic clients.

The challenge was how to present the notion of impact investing to families and demonstrate fiduciary responsibility at the same time. She knew the task at hand was to educate and help investors think in new ways.

TPI worked with a number of partners to help clients assess opportunities for Mission-Related Investing. They also facilitated an initiative to help community foundations offer impact investing to their donors.

After years of advising families and watching others struggle forward, Ellen felt she had not made the big step in transforming her wealth and portfolio. As Ellen told us, “I simply was not practicing what I was preaching.”

As she became comfortable with the benefits of impact investing, she reflected on the advice she had been receiving from her advisors. It was clear most weren’t aware that wealth could be aligned with values and that a rigorous investment approach could achieve meaningful financial results andsocial benefit for clients. As Ellen noted, it’s easy to simply “follow the recommendations of your advisor.”

Ellen responded by giving her advisor an ultimatum: Could the advisor’s team meet her needs as an impact investor? It quickly became evident the advisor couldn’t, and that’s when we welcomed her to Veris.

A Different Way
As an impact investor with Veris, we have helped Ellen seek market-rate returns that proved the skeptics in her family wrong. She learned that impact investing was a sound and viable approach to creating social benefit and financial gain.

Working through her foundation, she then moved to higher-impact investments, which not only accomplished her financial objectives, but also brought Ellen personal joy. Her son joined her family’s foundation board. He was very interested in impact investing and helped bring along the rest of the family.

Always advancing, Ellen wrote the TPI Guide to Impact Investing, which furthered her thinking about women and impact investing. She understood that women, in particular, have a special interest in impact investing, but often fail to translate their intent into action.

Invest for Better
So, Ellen got determined to help women invest with impact. Her goals were to educate and empower women about impacting investing, while demystifying the process.

All of this work has culminated in her current project, Invest For Better, a nonprofit campaign whose collaborators include TPI, Mission Throttle, Mission Investors Exchange, The Case Foundation, among others.

Ellen believes more women should be engaged in impact investing than they are today, but says there are three “gaps” that prevent more women from doing so.

The first is the aspiration gap – the disconnect between interest and action among women. Second is the application gap – having the time and confidence to invest with impact. Third is the support gap – having advisors and peers to discuss impact investing.

Like all of Ellen’s work, she has put her heart, soul and keen intellect into her new project. The team at Veris believes this well-timed initiative will play a vital role in motivating women to embrace impact investing.

More than anything, Ellen is one of those courageous leaders whose passion, energy and vision will continue to inspire us all.

Thank you, Ellen.

Veris Wealth Partners
Veris 2017 Impact Report
November 13, 2018

2017: Another Breakthrough Year for Impact Investing

Veris is proud to announce the release of our 3rd annual Impact Report, highlighting the collective achievements of its clients, the Veris team, and the investment managers we work with.

Veris 2017 Impact ReportAmong the milestones of the past year: Veris celebrated its 10th anniversary, reached $1 billion in client assets under management, and was named as a B Corporation Best for the World company for the sixth consecutive year.

The 24-page report describes the environmental and social impact resulting from our clients’ collective investments in our five thematic areas: Climate Change & the Environment, Community Wealth Building & Social Equality, Sustainable Agriculture & Food Systems, Gender Lens Investing, and Mindfulness & Sustainability.

The report also focuses on how Veris measures impact, both quantitatively and qualitatively. As part of our ongoing due diligence, we look at the role public companies, shareholder advocacy, private social enterprises, and community development solutions play in creating a more inclusive and sustainable economy.

Making Progress
We’re pleased to note that we have seen great progress each year in terms of understanding and communicating the impact of portfolio companies.

In 2017, impact reporting took a leap forward with the development of systems-level frameworks, such as the U.N. Sustainable Development Goals. To encourage more common language in impact reporting, Veris also reports metrics established by the Global Impact Investing Network’s (GIIN) Impact Reporting and Investment Standards (IRIS). IRIS facilitates comparison and best practices, transparency, and accountability in impact measurement.

What is also interesting about this year’s report is what it says about the positive direction of impact investing. We’re seeing increased momentum across the field – such as major commitments from conventional investors and growth of the Green Bond market and assets invested with a Gender Lens. If you haven’t seen our 2018 analysis of Gender Lens Investing, please feel free to download it here.

We believe these trends validate what Veris clients and our team have recognized for a decade: that investors can align their wealth with their values. The 2017 Veris Impact Report demonstrates our commitment to delivering the most impactful investment opportunities and supporting the overall growth of sustainable and impact investing.

We hope you will read our report, and we look forward to your feedback.

Click here to download the full report.

Veris Wealth Partners
Opportunity Zones
August 6, 2018

Opportunity Zones

By Lori Choi, Partner

“Opportunity Zones” are a hot topic in impact investing these days, but what are they and why might they be important for investors?

Embedded in the new Tax Cuts and Jobs Act signed into law, December 2017, are provisions around “Opportunity Zones.” They ask governors of all states and territories to designate up to a quarter of low-income census tracts as investible zones. The aim is to attract investment to these distressed communities by allowing investors to defer, reduce, or potentially eliminate capital gains taxes over time.

Why is this program important? According to Rockefeller Foundation President, Rajiv Shah, Opportunity Zones represent “the single biggest tax incentive to invest in low-income communities across America that we’ve seen in 100 years.”1 While impact investing champions are cautiously optimistic about the amount of dollars that could flow to low income communities, this new policy is also exciting in its potential to draw more mainstream investors into impact investing. According to the U.S. Impact Investing Alliance “there are currently trillions of dollars’ worth of unrealized gains in the capital markets. If even a portion of those gains are moved to invest in distressed communities, it could have a transformative impact.”2

Investors must invest in Qualified Opportunity Zone Funds within 180 days of selling an appreciated asset to receive the tax benefits, although the number of investment funds being created is still limited. Several of Veris’ impact investing partners are looking into forming Opportunity Zone Funds. We look forward to keeping you updated about how these may or may not be appropriate for your situation and goals.

Investors in Qualified Opportunity Funds will get to benefit in three ways:
• Taxes due on capital gains deferred until December 31, 2026, at the latest.
• Capital gains will be reduced by 10% for investments held 5+ years and 15% for 7+ years.
• Capital gains will be permanently eliminated for investments held 10+ years.

Impact investing champions like the Kresge Foundation3 have come forward to support the creation of Opportunity Zone Funds.

1 https://impactalpha.com/getting-ready-for-the-opportunity-and-peril-in-opportunity-zones/
2
3

Veris Wealth Partners