By Luisamaria Ruiz Carlile, Wealth Manager

As impact investing gains momentum, a common question we hear is: “What does the new breed of impact investors know that traditional investors don’t?” What insights have transformed these impact investors’ approach?

Here are three insights to consider:

1. Collectively, we have always been impact investors. Whether we know it or not, we have been shaping and transforming economies and ecosystems through our capital allocations for centuries. What we choose to finance – and what we don’t – has significant consequences for everyone. For instance, for decades we have been subsidizing oil and coal companies with hundreds of billions of dollars, while drastically underfunding renewable energy and conservation. As a result, we’re now scrambling to reverse environmental damage, create new sustainable industries, and assure that we have a dependable energy supply for our collective future.
2. We can own the impact created by our portfolios. Impact investors are saying “yes” to actively directing their investment dollars toward social and environmental goals, and “no” to the negative impact their portfolios have on society. In applying their financial muscle to innovative opportunities and challenges, impact investors are finding solutions. Whatever their goals – poverty alleviation, sustainable agriculture, environmental solutions, economic diversity and inclusion, among many others – impact investors know they can incorporate sustainability and impact across the many asset classes that make up their portfolios.
3. Investing for impact does not mean sacrificing investment performance. For years, investors have been told that impact and sustainable investments underperform their peers, that investing for social benefits means lower financial returns. The data solidly refutes this assertion. For example, the MSCI KLD 400 Social Index, launched in May 1990, tracks companies with high ESG* ratings. The MSCI KLD 400 had a 9.95% annualized return over 20 years, slightly outperforming the S&P 500 Index, which had a 20 year annualized return of 9.78%. A second excellent data point is the Dow Jones Sustainability World Index, which tracks global companies in the top ten percent for ESG criteria.

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As impact investing goes mainstream, it is upending the long-standing assumptions about “Passive” vs. “Active” investing. For some time now, the accepted wisdom of “Passive” investing has been to pick an asset allocation and populate it with low-cost, traditional index funds. Hand over the investing keys. Await returns.

“Active” impact investors, on the other hand, are not settling. Energized by embedding their values and passions into personalized portfolios, they expect multiple returns on their invested capital. Earning competitive financial returns is just the starting baseline. From there, it’s the additional benefits of investing for impact that are crucial: a healthy planet, thriving communities, diverse and inclusive workplaces.

Impact investors embrace a broad universe, including supporting micro-finance, shareholder-advocacy and community development. Impact investors are financing leading sustainable businesses and forward-thinking enterprises.

Compared to the personal, social, environmental and financial returns that “Active” impact investors are creating with their portfolios it now appears that “Passive” traditional investing is giving up much more. What a transformative moment in the history of investing.

*ESG (Environmental, Social and Governance) criteria used to rate the sustainability of companies

By Anders Ferguson, Partner

On May 12 I attended a private meeting led by the Dalai Lama and walked away heartened.

The Education of the Heart symposium at Erasmus University in Rotterdam brought together experts from education, science and business, including the Dalai Lama, to explore new ways of learning and knowing essential to creating a flourishing society and a sustainable economy. It was the fourth in a series of meetings about sustainability, mindfulness, learning and leadership with the Dalai Lama that I have had the honor of helping create since 1999.

The key takeaway of the event for me – which is aligned with the Dalai Lama’s thinking for the past 50 years – is that science is confirming the benefits of meditation and mindfulness. Neuroscience is also confirming that our minds connect deeply with our emotional and social intelligence. We now know that as we talk with a colleague, our “two mind’s energies” are interconnecting.

Thinking Differently

Mindfulness and meditative practice give us the opportunity to think more deeply and creatively about both opportunities and problems.

What was fascinating to learn at the symposium was new research about how meditative practice can literally rewire our neural networks, allowing our mind to consider possibilities and innovations. We were reminded that while our brains may be like computers, our minds are literally integrators of energy and information. They are not constrained by the bones of our skulls.

Rather than defaulting to the same tired answers, meditative practice enables us to think differently. The Dalai Lama said:

“I feel this growing enthusiasm based on realizing that something is not satisfactory, wanting something to change. I think this is very good. We usually take things for granted and go on according to tradition, in spite of drawbacks. This is a real failure preventing progress. But this enthusiasm, saying something is wrong, is the first step toward transformation or some positive change. Then we need more discussions, more research, more experimentation. Then we will find new answers.”¹

Speakers cited numerous examples of how mindfulness was changing education in Europe and the U.S. The breadth of the successful experiments in schools in Holland was remarkable. For instance, Project MindLab: Understanding the Mind, Educating the Heart awakens young peoples’ compassion through mindfulness. It also inspires teachers to relearn the nature of teaching. As teachers learn to relax their minds and bodies, learning is better and the whole school is calmer.

Leaders from business, government and educational organizations attending the symposium agreed not only about the importance of approaching problems holistically, but also that we must up our game significantly.

They acknowledged that the approach we have been using isn’t working. In fact, our whole understanding of the mind, learning and hence education is basically incorrect to the point of being not grounded in modern science.

What It Means For Impact Investing

Our desire for a new approach to understanding ourselves is also an opportunity for sustainable and impact investing.

The Dalai Lama said our external world is a mirror image of our internal life. Impact investing is growing because inspired individuals are creating new solutions that deal with global problems, from climate change to clean water to gender equality.

The mindfulness of investors and their ability to understand their inner knowing and values inspires investors to finance original and enlightened ways to advance the human condition. This is the emergent and thrilling intersection of mindfulness and impact investing. Its transformative.

We clearly have a long way to go before mindfulness – let alone mindful investing – is a mainstream concept, but we’re headed down the right path.

In the meantime, mindfulness is unfolding alongside impact investing and nothing but positive social change is likely to occur as a result. As we come to understand and cultivate the “Sustainable Mind,” we really engage and manifest impact investing.

¹His Holiness the Dalai Lama, Designing an Economy that Works for Everyone. Irvine California, 2004. 2nd Spirit in Business Dialog (2nd of 4)

By Anders Ferguson, Partner

Over the past 20 years, businesses and their investors have made serious efforts to be sustainably responsible and transparent.

The good news:  We’re finally making real progress.

Everywhere we turn the focus on sustainability and transparency is gaining momentum. The reason is that sustainable business and investing has become a key driver of innovation and market leadership in the U.S. and internationally.

Concrete Evidence

Today, Sustainable and Impact investing makes up 12% of total U.S. assets – almost $4 trillion in wealth. Every day, companies large and small are integrating sustainable strategies into their business models.  We see this in innovative new products created to meet growing demand from consumers who want to cast their dollar votes in favor of ideas that preserve Mother Earth or increase personal and community wellness.

At the same time, companies are scrutinizing their supply chains and prioritizing changes that enhance sustainability. Driving these efforts is the growing awareness that we’re all interconnected – as individuals and companies. None of us exist in a vacuum. We influence one another – positively or negatively. The choice is ours.  The greening of the supply chain is helping build this critical mass and save money at the same time.

The Catalyst: Sustainable Investing Practices

The emerging interconnection between sustainable finance/investing and sustainable business practices is the catalyst for change.

Unlike the past, when investing themes such as commodities or small cap companies captivated investors, emerging sustainable business models are creating new and exciting investing themes that deliver both financial return and positive social benefit.

The savviest investors are starting to realize the upside. They understand that business models that promote sustainability are highly transformative across industries, societies and borders.

As a result, the investment opportunities are enormous. Sustainable business models are fundamentally reinventing global commerce. The hot investing themes aren’t about a single product, but rather systemic, positive change.

What’s Going on?

Investors are searching for a merger of their values and their worldview that’s based on a more holistic view of investment risk.

Progressive businesses are moving away from blindly placing profit ahead of everything else. Increasingly, businesses are considering the prosperity of workers and communities, as well as the bottom line.

They are creating new operating principles, including willingly reporting to shareholders the impacts they are having on the environment and communities. They are embracing new metrics and accounting systems to report and drive change.

Structural Change

The clearest indication that businesses are reinventing themselves is the creation of SASB – the Sustainable Accounting Standards Board. Even more positive, is how SASB is evolving in prestige and visibility. The appointments of Michael Bloomberg as Chair and Mary Shapiro as Vice-Chair are very welcome additions to the Board.

In business, we say that if you can’t measure it, you can’t improve it.  In a few years new sustainable accounting standards will emerge that identify real impacts and hidden risks produced in the course of business. These standards create the baseline for US publicly traded companies to report material non-financial data pertinent to investors.  Costs traditionally ignored as “externalities” – arising from dumping carbon, polluting oceans, draining watersheds or tolerating communities of vast poverty – will be more clearly reported on corporate balance sheets for all to analyze and measure.

Europe As Leader

Europe is a good example of how momentum is building for Sustainable and Impact investing.

In April, the European Parliament made history by passing a new law requiring its biggest companies to include sustainability factors in their annual financial reports.  With a lopsided margin of 599-55, the Parliament voted to require the law to apply to publicly traded companies with more than 500 employees.

In their annual reports, these companies must address “policies, risks and results” in relation to “social, environmental and human rights impact, diversity and anti-corruption policies.” That’s another big step forward in promoting transparency and identifying the real costs of any business enterprise.

The Bottom Line

Where does all of this leave us?  Why is it critical that we have a new financial accounting system to better report the risks and opportunities facing companies?

Comprehensive reporting is the new connective tissue between investors and business operations, creating a united front for delivering badly needed transformative change. For the first time, risks will be more accurately priced in, innovation will receive greater recognition and distortive subsidies will become more apparent.  Much has been accomplished. We still have significant work to do.

In this environment, investors are actively encouraging transparency and positive change.  They want to partner with progressive businesses that are creating a future of more sustainable abundance and much less destruction and waste of our societies and the environment.

Creating sustainable change takes radical transparency.

By Michael Lent, Chief Investment Officer

One of the questions we hear often is whether there is a financial performance trade-off to impact investing. So, how does the domestic public equity segment of impact investing stack up?

The short answer: Very well compared to relevant traditional benchmarks.

At Veris Wealth Partners, we practice impact investing each and every day. We manage our clients’ portfolios to generate financial returns with positive social and/or environmental results. We believe you can achieve impact across all asset classes, including domestic public equity. Domestic public equity is a tremendous opportunity to invest in forward-thinking corporations leading in governance practices. They are also leaders in board diversity, and operational excellence in utilizing renewable energy and greener supply chains. These corporate innovators are creating scalable solutions to global challenges. They are positively impacting the lives of key stakeholders – employees, customers, communities, and the environment we all share.

A Good Yardstick

One of the best sustainable proxies for a domestic public equity allocation is the MSCI KLD 400 Social Index. It takes a broad market index, the MSCI USA, and selects only those companies that meet best-in-class environmental, social and governance (ESG) criteria.

In 2013, the annual performance of the MSCI KLD 400 Social Index was +36.2%. That was better than traditional (non-impact) indices, such as the MSCI USA Index, which returned +32.6% and the S&P 500 Index returning +32.3% over the same period. Companies with higher positive environmental and social impacts outperformed both traditional indices by more than 350 basis points.

2013 was clearly a good year, but in some years, the MSCI KLD 400 underperformed the MSCI USA and the S&P 500. At Veris, we prefer to look at performance over the longer term. Since January 1992 the MSCI KLD 400 has produced an annualized return of +9.58%, compared to the MSCI USA Index which returned +9.29%. Over this same period, the S&P 500 Index returned +9.19%. Results show higher positive-impact domestic companies outperform their traditional competitors over the long-term — this is evident in the chart below which exhibits the growth of $100 over time. MSCI KLD 400 is the blue line outpacing the others.

Impact Performance

In addition to financial performance, Veris looks for investments that create measurable positive social and/or environmental impact such as lower reliance on carbon intensive energy, product innovation, employee empowerment, efficient water usage and more. Investors have growing access to sophisticated Environmental, Social and Governance (ESG) data for public corporations through organizations like Sustainalytics and MSCI. As the quality of ESG data improves, asset managers get better at incorporating ESG data at a company level.

By integrating impact into performance, we measure total integrated return of client’s investments to include financial externalities. We believe that integrating financial and non-financial returns may allow our portfolios to outperform traditional portfolios given their ability to respond to increasing natural resource constraints, innovation, and ability to target growing demand by customers for products and services that solve problems instead of creating more.

Shareholder Engagement

Public equity impact investing also provides the ability for shareholders to engage corporate management and boards in dialogue around key issues for ESG improvement. Increasingly shareholders are winning interventions on issues from climate change to human slavery. Rather than a “nice to have,” impact investors demand using their company ownership to direct votes for corporate change.

What Veris Looks For

Veris utilizes a proprietary due diligence process to evaluate investments from both a risk-adjusted and impact performance perspective that compares investments to impact and traditional indices. For public equity, we look for managers that integrate ESG criteria into their investment management process.

Opportunity Abounds

In the past there were many fewer ways to achieve positive financial and impact return. As impact investing moves from niche to mainstream, we see a significant increase in available investments. Opportunities exist across all asset classes, empowering visitors to build diversified portfolios to achieve their total performance objectives. The growing number of quality management teams producing admirable performance directly results from increased demand from individuals and foundations putting their wealth to work with purpose.

Veris is pleased to work with clients committed to maximizing their total impact investment performance – financial, environmental and social.

By Patricia Farrar-Rivas, CEO, and Luisamaria Ruiz Carlile, Wealth Manager

That is the key question that “gender lens investing” (“GLI”) puts in front of thoughtful investors as they review their portfolios and select new investments.

Do I hold investments that are channeling capital to women, whether in the U.S. or abroad? Is the mutual fund in my IRA screening companies for board diversity and gender equity in the workplace? Have I asked about the diversity of company ownership and management when I’ve selected investment managers?

Just as investors today are asking about the social impact of their investments on the environment, workers, consumers and society, so, too, are many seeking investments managed by women or that advance opportunities for women and girls.

A World of Opportunities

Each day, new research demonstrates the enormous, positive economic impact created by women and girls around the world. Their contributions range from women in emerging markets who repay loans at extraordinarily high rates, to Silicon Valley entrepreneurs successfully putting venture capital to work, to research showing companies with higher numbers of women in management outperform their peers.

Currently, the choice of investment vehicles that are specifically constructed with a gender lens is limited, but it grows as more investors understand its power and potential. In the meantime, Veris continues to cast a wide net to identify excellent opportunities that advance the following goals:

• Provide more access to capital for women
• Expand gender equity in the workplace and on corporate boards
• Increase the number of products and services that benefit women and girls
• Support firms that are led and/or majority-owned by women
• Create economic growth in the developing world by investing in women and girls

Our research has also identified a broad range of other opportunities. These include promissory notes, private investments, and public securities and mutual funds that help achieve one or more of the above goals.

A particular mutual fund, for example, may have strong governance screens that prioritize board diversity. A different fund might have a female portfolio manager, while another may channel microfinance dollars to women in Africa. The majority of these opportunities target competitive market returns, while others are by design below-market rate investments to increase the flow of capital to women.

Building better companies and communities entails shifting the flow of wealth to women and girls to help alleviate poverty, and increase women’s leadership and economic status. The financial and impact returns from investing in women are so compelling that using a gender lens should not be considered a “niche” approach.

Remarkably, these women-focused investing trends may be a “disruptive trend” on both sides of the investing perspective: Investors and Investments. As the huge shift of wealth continues toward women, financial organizations from foundations to advisors to companies are seeing women significantly more engaged. Women tend to care more about the social and environmental impact of their portfolios and they are integrating their values into the management of their wealth.

In short, the portfolios of all investors – institutions, families, man and women – would benefit from scanning the investing landscape with fresh eyes and a good question: “What about the women?”

Please check out Veris’ Thought Piece, Women, Wealth and Impact: Investing with a Gender Lens for more information.

The Veris Blog is written by a team of authors at Veris, including Patricia Farrar-Rivas and Luisamaria Ruiz Carlile. Please feel free to share with friends and on social media. Working together, we can address the world’s most pressing social and environmental problems by directing capital to investments that make a difference. 

The Heat

In game 6 of the NBA championships, Lebron James led the Miami Heat past the San Antonio Spurs, winning 103-100–the same day the Miami heat index reportedly reached 103. If Lebron James is the face of the NBA champion Miami Heat, environmental activist Bill McKibben is the face of the national fossil fuel divestment movement led by 350.org.

McKibben’s campaign to mobilize investors to divest from the companies that hold the world’s 200 largest fossil fuel reserves has an important relationship to temperature, in Miami and globally. The International Energy Agency has stated that to keep temperatures within 2 degrees Celsius of pre-industrial levels, we cannot burn more than one-third of the world’s known fossil fuel reserves before 2050. Experts suggest that above 2 degrees Celsius, human habitability and earth ecosystems become fatally compromised. This temperature target was the catalyst for McKibben’s call to divest, a call that has been answered by five colleges and eleven cities nationally to date.

At the heart of the movement are student leaders at campuses across the country, calling for college endowments to divest for ethical and symbolic reasons. The fossil fuel divestment movement seeks to create dialogue and motivate university trustees, who are decision makers on over $400 billion in endowment assets, to consider the responsibility in addressing global challenges such as climate change.

The Role of Sustainable Investing

Sustainable investors, like Veris, have long promoted re-allocating investment capital away from carbon intensive companies towards climate change solutions. This includes investments in alternative energy, energy efficiency, natural resources (e.g. water, farmland, and forestry), green building and green infrastructure developments.

While global fossil fuel reserves are a critical data point to consider when investing in the energy sector, as pointed out by McKibben’s movement, there are many other key considerations–hydrofracking, pipeline development and rapidly changing technology–for sustainable investors. Furthermore, sustainable investors use Environmental, Social and Governance (ESG) investment criteria to consider factors beyond a company’s fossil fuel reserve size. These criteria include specific data points, such as a company’s decision-making process from a governance perspective, impact on the community and treatment of workers.

At Veris, we practice a holistic portfolio approach to mitigate climate change. We enable our clients to divest as appropriate, invest proactively in climate change solutions, support shareholder engagement to shift corporate behavior of the worst environmental offenders across all asset classes. We are not alone in this approach. Many leaders, including those at the center of the divestment movement, agree. The fossil fuel divestment movement, mentioned by President Obama in a recent speech, is a catalyst for transformational dialogue across mainstream board rooms around risk and responsibility.

At Veris, we advance connections between our clients, their investment portfolios, and the world they want to create. We all live in a world where we cannot escape fossil fuels–from the clothes we wear, the food we eat, to the cars and planes we travel in. We can, however, use our assets–as individuals, municipalities and endowments–to increase investment in climate solutions that transform our lives and economy.

Welcome to the inaugural issue of IMPACT: Ideas and insights changing the world and the way we invest. We created IMPACT to share the latest thinking and perspective of the Veris Team and to highlight a couple of key trends and research about sustainable and impact investing.

We live in transformative times.  An epoch of deep change is under way, creating new ideas and action amidst a sea of profound challenges and creative destruction.  Climate change may be altering our planet, our ecosystem, and other essential life-giving and supporting factors in unimaginably negative ways. Human health may be in decline from chronic disease and global pandemics caused by modern lifestyles; they are swamping not only the American healthcare system, but also rapidly growing nations like China and India.

Core industries are dying. In manufacturing, human hands are being replaced by robots, or otherwise by the hands of lower-wage workers in emerging countries. Very high and chronic unemployment may become structural in Western economies.  Our social safety nets are crumbling.

The Power of Innovation

At the same time, innovation and new technologies are driving a rapid shift to sustainable industries. Astoundingly, wind energy is threatening nuclear and power electric production in the US. Global companies and social entrepreneurs are simultaneously seeking new ways to build more sustainable companies and enterprises to solve intractable environmental and social dilemmas.  In fact, sustainable corporate practices are growing so rapidly that we are seeing a whole class of companies beginning to “break away” from the pack. They are outperforming and out-innovating their competitors based on serious and holistic sustainable business practices.

In local communities, we are seeing community-based organizations, NGOs and individuals taking action to build more resilient and life-giving communities.  Just look at the explosion of local food systems, community energy, Community Development Banks, energy-efficient buildings, new indicators to measure human prosperity. All of this is creating communities that have a resilient, sustainable vision of places people can live and work. Look around. It won’t take long to find these and other practical examples of “new wealth” being built in your community.

The Veris Solution

At Veris, we track these macro and micro trends and work to understand them. We work with families and foundations who care as much about performance as using their wealth to positively impact society. We also work with a wide ecosystem of colleagues across the sustainable investing landscape to create and advance cutting-edge approaches to fully integrating sustainable business practices and impact investing.  After all, capital drives economies and our individual values drive how we invest our capital.  Veris supports those changing their practices to make a difference in their lifetime and for future generations.

Featured in this inaugural issue is a highlight on one way that Veris walks our talk to create impact inside our company and in the world: our membership in the world of B Corporations.  We are thrilled to be named a Best for the World B Corp and to be the only wealth manager with that distinction.

In upcoming posts we will highlight issues ranging from:

• Green technologies transforming products and production
• Gender Lens Investing recognizing and empowering women, girls and companies
• Community wealth building renewing communities
• Sustainable food systems bring local and sustainable food back home
• And on…

We hope you enjoy IMPACT.  We promise only relevant and pithy commentary combined with breaking stories. In a world of information overload, we curate content to give you insight and ideas that are changing the world and the way we invest…in under 5 minutes.