For as long as there have been investments, there have been socially responsible investments (SRI).
Some ancient cultures essentially mandated them in 1500-1300 BC, while others forbid investment in such things as gambling, alcohol and pork. By the 18th century, certain religious sects were steering dollars away from the slave trade, and by 1928 the US had its first publicly available investment vehicle – the Pioneer Fund – expressly designed to screen out so-called “sin” industries.
SRI really picked up steam, however, in the 1960s and the decades that followed, at which point its history begins to collide with what we now think of as impact investing – wherein investors do not merely screen out bad investments, but make ones that serve social good and deliver market returns.
This relatively recent shift – and the explosion of interest of late – begs the question: How did we get from a solitary Pioneer Fund to a $715 billion impact investing market?
Numerous factors played a role, but as leaders in specialty finance administration (SFA) – which helps fund managers and investors easily gauge a given investment’s social impact – we would argue that measurement was, and continues to be, absolutely vital.
“What’s Measured Improves.”
The groundwork of the modern impact investing market was laid by the social movements of the 1960s. Civil rights, women’s fight for equality, the Vietnam War – all served, as Steve Schueth notes, “to escalate sensitivity to issues of social responsibility and accountability.”
Towards the end of the decade, anti-war protestors demanded that university endowments no longer invest in defense contractors, launching a SRI movement against “Agent Orange.” In the early 1970s, mutual funds began to sprout up reflecting “faith-based values, civil rights-era sensibilities, and environmental concerns” – the last of which came to the fore as “protests over nuclear disarmament evolved into concerns over nuclear energy.”
By the time the 1980s rolled around, the SRI value proposition in major world markets had become relatively standardized and popularized; accordingly, more and more firms awoke to the importance of new concepts like corporate responsibility and shareholder engagement, which ultimately ushered in the environmental, social and governance (ESG) principles familiar to us today.
Ultimately, new multinational institutions – buttressed by domestic regulators, like the SEC and EPA in the US, and a bevy of new federal legislation (e.g., the Community Reinvestment Act) – established standards by which to measure social impact and sustainability.
For instance: Ceres, a coalition of environmental nonprofits, religious investors, and large asset managers, developed a set of ten sustainability principles for companies to (voluntarily) sign, setting the stage for the Global Reporting Initiative and disclosure frameworks developed by the Sustainable Accounting Standards Board. By the mid-2000s, we would see the Rockefeller Foundation launch a major impact investing approach based on the UN’s Principles for Responsible Investment and Bloomberg add significant ESG data coverage. New measurement models, such as the Global Impact Investing Network’s IRIS+ and Howard Buffet’s Impact Rate of Return, have continued to move the needle.
Another example includes JTC Company, which acquired NES Financial this past April. JTC’s culture is a true differentiator compared to other fund administrators, which goes back to their Shared Ownership structure. This has been in place since 1998 and makes every employee a direct stakeholder in the business and is a true unique selling proposition, which adds value by aligning our people directly with the interests of our clients and the business over the long-term.
This truly sets JTC apart from other firms and has created a ‘stronger together’ culture. In fact, JTC’s ownership model is so unique that Harvard Business School included the firm in its 2019 MBA curriculum.
As of 2017, 93% of the world’s largest 250 companies were reporting on sustainability issues – with over 4,500 companies being scored on ESG characteristics by Sustainalytics.
To repeat the words of famed management consultant Peter Drucker: “What’s measured improves.”
A New Era of Impact Measurement: Specialty Finance Administration
With more capital and investors involved in impact investing today than ever before, measurement has taken on an entirely new significance.
A 2020 survey, for example, found that 66% of investors are now concerned with “impact washing” – that is, only achieving impact in name – while initiatives like Opportunity Zones face critics who say the incentive doesn’t actually help the populations it’s designed to serve. Covid-19, which has disproportionately affected our most distressed communities, has only amplified these concerns.
The reality is that measuring impact is and always has been difficult. Connecting a specific investment to a tangible outcome (e.g., a new real estate project to job creation) – especially when collecting certain demographic data presents legal challenges – is not as easy as simply screening out bad investments.
But we’re also in a new era, where specialty finance administration tools like ours can seamlessly track and report impact metrics – no matter the size or type of fund.
If the history of impact investing is, in large part, the history of measuring it, then SFA is an integral part of its future. Proper measurement catalyzes a virtuous cycle: by proving impact investing actually has an impact, we get more people involved, and the more people get involved, the more we impact we can have.
At JTC Americas, Formerly NES Financial, we’re proud to play an important role in contributing to this history. Learn more about our impact investing by visiting our Impact Investing Resource Center.