Click on the icons below to find out more. (Source: United Nations, abridged)
Working within the main asset classes and securities, responsible investing covers a range of activities from exclusion/negative screening, through themes (cleantech, water, etc.), corporate engagement, to best-in-class/positive screening.
The UN established the Principles for Responsible Investing in order to promote this movement.
One of the key tools in sustainable investment are environmental, sustainable and governance metrics (ESG). There are criticisms of a reliance on ESG because
Defined as investments made with the intention to generate social/environmental impact alongside a financial return. The term emerged in 2007.
Impact investing focuses on addressing major social and/or environmental challenges whilst generating financial returns. Impact investing can be applied as a lens across an entire portfolio. This may be in fixed income community loan funds or highly targeted environmental private equity funds.
Impact investing is often a way to express personal values/missions through investment decisions – using the power of business to solve social and environmental problems.
Social Investments are defined as “the provision and use of repayable finance to generate social as well as financial returns. Social investment may occur in a variety of forms such as loans, equity and bonds.
Social returns are improved outcomes for society and range substantially – from, for example, improved individual health to employability amongst disadvantaged groups, to provision of community goods and services, to the community impact of reduced carbon emissions. Financial returns imply that the social investor will be able to get their money back in the future with a return. By this definition, grants, donations and other funds with no expectation of being paid back are not social investments”
ESG investing strategies rely on the three ESG factors to identify forward thinking, well-managed companies. Companies are increasingly using these factors to evaluate and improve their own operations, which often result in better economic performance and increased shareholder values over the long-term. ESG Investing is a returns-driven strategy, that draws heavily on both quantitative and qualitative analysis. It integrates traditional equity research with the evaluation of an extended set of environmental, social and strategic governance metrics.
A number of different criteria are used to “screen out” certain types of investments that my be inconsistent with an investor’s personal values because of controversial business practices, such as military or tobacco, or because they do not meet defined ESG (Environmental, Social and Governance) criteria. Whilst this approach has historically been focused on a negative screening, it increasingly incorporates positive ESG criteria to identify companies with more sustainable practices than their industry peers.
SRI Investing typically seeks to maximize returns within a framework of personal values. It employs three primary strategies: investment screening and Environmental, Social & Governance (ESG) analysis, shareholder advocacy and community/impact investing. The desire to have social impact and generate meaningful financial returns is driving the growth of SRI investment strategies.
MRI is used primarily by foundations and other mission-driven organisations. This approach aligns financial assets with mission outcomes in an effort to meet targeted financial returns and amplify the impact of programmatic activity. MRI includes both traditional investments seeking market rate returns and Program Related Investments (PRI), where the primary intent is a high level of mission-aligned impact.
Impact investing is unique in that on some occasions, the investor may be willing to accept a lower financial return in exchange for achievement of a higher social outcome; mainstream investors have thus often assumed that impact investments always generate below-market returns. This is not true.
An individual’s ImpactDNA™ is the backbone to their investment portfolio at Tribe. We take time to understand an individuals core values and beliefs and work these around the UN Sustainable Development Goals (SDGs) framework to build an individuals ImpactDNA™. We then thread each individuals ImpactDNA™ through their portfolio, to ensure that the investment capital they commit achieves both positive impact in the areas that they are truly passionate about and financial returns.
An impact lens is an investment strategy focusing on a specific impact area. E.g. Gender lens investing is the practice of investing for financial return while also considering the benefits to women. Gender lens investing can include funding women-owned businesses, businesses with a strong track record of employing women, or companies that improve the lives of women and girls with their products and services.
Other impact lenses might include poverty alleviation, building community wealth or combating climate change.