Sunday, March 18, 2018

Should Impact Investors Shun “a Solid Return”?

In his Wealth Matters column, Paul Sullivan defines impact investing as "a movement that aims to force social change by minimizing or eliminating investors’ exposure to companies that harm the world and achieve a solid return."

Impact investors can't be that masochistic. Perhaps Sullivan meant "while still achieving a solid return." (Remember the days when The New York Times had copy editors?) 

Still, the definition is couched in unnecessarily negative terms. Why not call impact investing "a movement that aims to maximize investors' exposure to companies that improve the world"?

As the column suggests, the popular meaning of "impact investing"  has become fuzzy. Narrowly defined, impact investors are those who deploy significant sums to start or back socially desirable projects or efforts. Defined more broadly, as wealth management marketers have been quick to do, impact investors are merely today's equivalent of socially conscious investors. 

The old-timers, however, might shudder at the idea of labeling Exxon an impact investment, even if the oil company does have a diverse board. 

1 comment:

Jim Gust said...

Does anyone fall for this nonsense, or is it just the latest marketing spin cooked up by mutual fund vendors?

I understood it when people said they didn't want to own tobacco companies, despite their profitability. Those dividends were "blood money" in some sense.

I don't understand how choosing a company because it has a "diverse" board is supposedly making an impact. In the first place, adding women or people of color to the board doesn't actually do anything for diversity, except in in PR sense. Those people all have the same education, largely the same background, and almost certainly the same politics. The boardroom today is classic groupthink. In the second place, is there any study that shows "diverse" boards outperform the market? Finally, what is the theory here? That if all right-thinking people buy up the stocks of the "socially good" companies, that will create a scarcity in their shares and drive up prices?

I don't think so. Earnings count more. Earnings is what has an impact.