I was in a great conversation today among social investors. We hit many becoming-familiar themes and I thought I’d summarize them for a larger audience. A core organizing question: Is it possible to invest in a socially conscious way without a performance penalty? It’s a core question, The Stanford Social Innovation Review issue (http://www.ssireview.org/articles/entry/impact_investing) last fall captured and re-ignited the debate about impact and market rate returns. This questioner did put money into two funds, one with sustainable & responsible metrics (SRI) and one pretty standard fund. The SRI investment lagged the standard one last year. What gives? As we went around the room, answers include:
- That was just one year, you need to follow those investments through full cycles and what you should see is that the SRI investments are taking less risk and cut the downswings short.
- You’re evaluating the success of those two funds by standards that were set by the traditional investment market, so it’s no surprise that the traditional investment wins. The whole point of impact or sustainable & responsible investing is that you’re looking to do better on normally neglected metrics.
- You just picked two funds, maybe you did a better job picking the traditional fund than you did picking your SRI fund.
- You’re investing in funds of public equities, which are seeking to meet the overall behavior of already efficient markets. The world is changing and millions of people are changing their behavior for a better world. If you can invest specifically in good companies offering the new products and services that help people change then you can profit from the move towards a better world.
- How much is enough? Outperforming some other fund or index is fundamentally a relative measure: what’s the absolute measure of what you really need? And further, what’s the sustainable answer? In a world where the economy grows globally at 6%, and people’s retirements need to grow at 8%, investing is fundamentally extractive.
- For folks who are blessed to feel they already have enough, the question is less one of how much money can I make but how much difference can I make while I invest at a risk I can tolerate.
Lots of fascinating food for thought, hope it can stimulate you as much as it did this group.