Assessing the Impact of Investments
For over 30 years now the L&P team at Cantor Fitzgerald has been working closely with their non-profit clients both in Ireland and internationally. Having recently launched the second iteration of the L&P Investment Impact Report to build understanding and awareness of the impact that the typical L&P portfolio generates over the course of a year, Associate Director of Investment Services Ian Halstead shares his insights.
Investments are continually sourced on the dual purpose of meeting client investment objectives and providing a positive impact on the world around us. Both of these are integral to the investment process and strategy. Particular investments are assessed to see whether it can improve the overall impact of a client’s portfolio under a variety of headings in the environmental and social areas.
- Does the investment have a lower-than-average carbon emission profile for an investment of its nature? For example, an equity fund can achieve this impact by excluding investment in companies involved in the extraction and burning of fossil fuels.
- Does the investment have any carbon sink characteristics, that would offset emissions from economic activity within the other investments held within the portfolio?
- Does the investment produce renewable power that will help to offset the production of fossil fuel power elsewhere in the economy?
- Does the investment have a higher rate of job creation than average? Job creation that helps to alleviate poverty, especially in the developing world, is particularly useful.
- Are there any other social impact benefits that can be derived from the investment? Does it for example provide a social benefit that is in high demand in the country in which the investment is located, such as the New Haven Social Housing Fund providing much needed social housing in Ireland.
Incorporating the UN Sustainable Development Goals
The United Nations Sustainable Development Goals (SDGs) came into effect in January 2016, and are now fully incorporated into our impact assessment process. Adopted by all UN member states, the SDGs are a universal call to action to end poverty, protect the planet and promote prosperity and people’s wellbeing by 2030. They provide guidelines and targets for countries to adopt in accordance with their own priorities and the environmental challenges facing the planet. They integrate and balance the three dimensions of sustainable development: economic, social, and environmental.
Achieving the SDGs on a global basis requires collaboration between governments, the private sector, civil society, and citizens alike. Impact investors play a key role in the realisation of the goals, as they reflect many of the values and principles of impact investing. The SDGs provide us with an additional useful framework for analysing areas of impact for our client portfolios, and we seek to build portfolios that comply with most, if not all, of the SDGs.
In times past, ethical and impact investing was often a subjective exercise, with investors and investment managers seeking to explain any ethical or positive impact benefits arising from their portfolios through loose narratives and specific examples. However, the measurement of impact through investment has now evolved into a more objective exercise. At L&P we seek to apply objective, factual measures to assess the overall impact of our client portfolios.
The benefits of this approach are numerous. Objective measurement allows us to assess exactly how much impact our client portfolios have achieved relative to other charity portfolios and mainstream investments.
Ian Halstead is the Associate Director of Investment Services at L&P Group.