Tag Archives: responsible investing

Put a Label on it: #ESG, #SRI, #ImpInv or what?

By Lauren Burnhill, @LaurenOPV

I had planned to skip the blog this week to focus on deadlines, but happily procrastination turns out to be a friend to consistency. This post evolved on the basis of various discussions and research efforts over the past few weeks, with the primary issue being “what the heck is the right name for what I’m trying to do”?

The term “Impact Investment” or #ImpInv is still gaining followers, but these days I’m finding myself most often saying “sustainable, responsible, investment” because it more transparently captures what I want to do as an investor:

  • sustainable, i.e., put capital into something that can reach its optimal size and then remain stable and vibrant,
  • responsible, i.e., respectful the common good by considering social and environmental impact of operating and financial decisions, and
  •  investment i.e., delivering appropriate return levels for the sector and market to be served.

But the acronym for this would be #SRI, which for quite some time has meant “socially responsible investment”, specifically the practice of positive screening of listed stock and securities for #ESG (environmental, social, governance) indicators.

Last week I had an interesting dialogue with the guys @SolarMosaic around whether or not “SRI” and “ImpInv” could be used as interchangeable terms. You can read their blog post on the topic too. The two terms have not been synonymous in the past, but perhaps they are headed in that direction. Earlier this week I saw SRI defined as “sustainable, responsible, impact” investment.

This is how I explain what I do to people who have never heard of “impact investment”: In mainstream finance, the concepts of social and environmental impact are considered externalities. They are not. Every investment decision we make has social and environmental consequences on one or more of three levels:
1. eco-system: macro level and multi-stakeholder environment

2. operations: how the firm treats its employees and manages its resource use

3. clients: who is the target market? The base of the pyramid (#BOP) – and if so, classes D and E, or just D? The middle of the pyramid (#MOP)? That growing “C” class that aspires to be “middle class” and yet still lacks so many of the basic comforts enjoyed by the A and B classes? What happens if I want to sell #renewable #energy to the A and B classes, or – trend watch – “scale the pyramid” by providing goods and services at different price points to a variety of market segments?

Making the world a better place shouldn’t be restricted to trying to make the very poor a little less miserable. My hope is that our efforts contribute to a world that is more just, and more comfortable for everyone, regardless of age, gender, ethnicity, geographic location or social class. Would it surprise you to know that I also really enjoy certain sub-genres of science fiction, especially those that explore utopian visions (or nightmares) of society :o!

Rather than dismissing non-financial impacts as externalities, I aim to generate a positive and optimized blend of financial, social and environmental returns wherever I invest. When I’m structuring for philanthropic organizations, optimization may require a  higher weighting to social and environmental returns than to financial returns but positive financial performance is still a requirement. In other words, you need to be projecting & tracking expenses, demonstrating consistent trends with respect to revenue generation and providing timely and accurate financial reports regardless of whether your ROE is 0 or 25%.

While I have your attention,check out this great post by Ameen Walji on the World Bank Development Marketplace blog. Ameen rightly notes that gaps around financial and technical (advisory) intermediation are more of a problem for social enterprise than the oft-lamented “lack of pipeline”.

It’s all well and good to educate potential investors and support emerging entrepreneurs, but in order for capital to flow from the former to the latter, we need to create funding instruments that help intermediaries form and grow to scale. Five firms that serve 100 enterprises a year would have to be a more effective intermediation pathway than 50 firms serving 10 clients each.

OK, that’s quite enough soapbox procrastination for one day. If you have any insights into vocabulary trends or practice definitions, please share them in the Comments box below!