September 26, 2018

Impact Investing: Adding a Dimension

Imagine hypothetical companies A, B, and C. All three companies have essentially the same return profile, with similar forward earnings and growth expectations. They also show similar volatility, and perhaps are even in the same industry. Here is the difference:

  • Company A uses large amounts of fossil fuels in production, resulting in a reputation for pollution.
  • Company B has adopted new sustainable supply chain measures that make it environmentally neutral and protect against supply chain disruptions.
  • Company C has found a way to use previously discarded chemical byproducts to fuel their production, thereby providing a valuable environmental service in the regular process of their business.

These are, of course, imaginary companies, but the point is that you can have firms that would look similar to investors of the past, but are really quite different. The difference is not in their risk or return, but in the third dimension of real-world impact.

Click here or on the image below to view a larger version.

Source: United Nations Principles for Responsible Investing (UNPRI)

Impact investing is about taking note of this third investment dimension, where investors are able to evaluate potential opportunities not just on the two axes of risk and return, but also on a third axis of real-world impact. Impact investing does not necessarily mean sacrificing risk and return characteristics, but having the option to assess the balance of all three characteristics. The above graphic illustrates this shift from a two-dimensional investment approach to a three-dimensional model.

Arnerich Massena has been focusing research on thematic impact investments in the areas of water, resource efficiency, agriculture, and life sciences – all of which we categorize as “what the world needs,” which we believe are going to become ever more critical (and profitable) as the future unfolds.

Co-CIO Bryan Shipley remarks, “As we examine impact investment opportunities, we’re finding that impact investing isn’t about sacrificing return or screening things out, but about making a positive impact on the world while maximizing our clients’ investment return.”

Ask us about the current opportunities we are investigating – read our recent blog posts about water, resource efficiency, agriculture, and life sciences – and the potential they present for investors. Look for our full research white paper on impact investing coming soon.