Sustainable Investing

As philanthropy moves towards impact investing and adopts more blended value approaches, it is worth understanding that there are many different options in this space. PRIs, MRIs, SRI, impact investing, mission aligned investing and sustainable investing all are different takes on how best to deploy capital in ways that generates financial returns while pursuing social impact.

Today, I want to introduce readers to Steve Viederman, the former president of the Jessie Smith Noyes Foundation, where he led the integration of the foundation’s grantmaking and asset management activities. His efforts in this process were profiled in the Harvard Business Review in the 1994 article (long before impact investing become a common topic) Social Investing at the Jessie Smith Noyes Foundation.

Today, at Steve’s request, I’d like to share a draft of a paper he’s written with Nick Robins, head of the Climate Change Centre at HSBC and Cary Krosinsky, vice president at Trucost. The paper updates Nick and Cary’s book Sustainable Investing: The Art of Long Term Performance and examines the lessons learned from the financial crises.

The paper makes the case that companies often generate social or environmental costs to society that will likely have to be covered by the company in the future. In essence, they are incurring “off balance sheet” liabilities that may come back onto their financial statements in the future. We can see this idea in action as companies who have long produced carbon in the course of their activities are suddenly seeing a price being set on carbon generation with the cost being shifted from society’s balance sheet back to the company producing the carbon. Sustainable investing is the practice of explicitly accounting for these social and environmental costs in the process of making for-profit investment decisions.

I bring all of this to your attention because it is an example of the way that generating social returns does not imply a reduction of financial returns. Sustainable investors are attempting to enhance financial returns by paying attention to social costs and benefits being generated. Impact investing often is cast as a trade off where investors willingly take a lower financial return in exchange for generating social benefit. That trade off is not set in stone.

Steve has asked that I share this paper (still in draft form) with my readers to solicit your input. In his email he pointed out that while they’ve received lots of feedback, it has been difficult to engage the foundation world in dialog on this topic (which is disturbing, because foundations should be the ones leading this discussion).

So give the paper a read and shoot Steve, Nick and Cary an email with your thoughts.Steve’s work in the early 90’s may have been a decade or so ahead of its time, but a decade from now, working in philanthropy is going to require an understanding of the full spectrum of blended value. You might as well start climbing the learning curve now.

Click here to download the paper.