Evaluating businesses for their social impact has become an important investment trend. Savvy long-term investors realize that companies who do good, also do well.
More than ever, businesses succeed and grow when good values are embedded in their core business practices — like treating employees well, fostering sustainability, helping others.
[Note: Make It Better’s 10-year history also proves this. Bucking publishing trends, we’ve flourished because everything we write and do fosters powerful, positive connections, which help to make life better for our audience and others.]
Correspondingly, a growing number of the top investment firms offer social impact advice, insights, and tools too. Here’s a look at five such firms.
At Make It Better’s recent Money, Values and Impact symposium, Morgan Stanley Vice Chairman Carla Harris presented a compelling description of her work with large corporations across the United States and around the world on their social impact.
“I’ve had more ‘Courageous Conversations’ with CEOs where we discuss ills, issues in their communities. They acknowledge that they must do something… lock arms with their employees to understand how they are dealing with problems [and how their companies can help] too.”
Furthermore, she explains, a growing number of firms now believe that they are responsible to four or five constituencies — not just the traditional three. Until recently, corporations identified shareholders, customers, and employees as their primary constituencies. Most now include “community.”
Some — like Starbucks and Hershey’s — include supply chain resources as an area of primary concern too.
“Hershey’s sources a lot of cocoa from Africa,” Harris says. “It asks itself how to empower and educate those farmers, how to innovate and impact those countries and others around the world too.”
Social concerns like how a business impacts the environment have long been a core component of William Blair’s investment analysis strategy and advice, says Blake Pontius, CFA, portfolio specialist at William Blair. “We consider environmental, social, and corporate governance (ESG) issues to be… inextricably linked with our fundamental assessment of the quality of corporate management and financial statements.”
Pontius affirms a growing trend by corporations to examine core activities through a social lens too. “Many businesses are focusing on aligning core practices around social values, as interest in environmental, social, and governance (ESG) investment factors is expanding at a rapid pace among institutional and retail investors. Some studies have shown that businesses with strong corporate governance and social considerations such as racial diversity and employee satisfaction can lead to improved performance.”
While Northern Trust does not yet include analysis of social impact as a core investment analysis strategy, it has devoted considerable resources to understanding and promoting social impact through philanthropy — initially through its own work helping underserved communities, and more recently as part of its work advising institutional investors, too.
Connie Lindsey, the firm’s head of corporate social responsibility and global diversity & inclusion, explains, “Northern Trust has a long history of investing its own capital in underserved communities to create sustainable positive change. We believe in the power of capital and the unique role patient flexible capital can have in creating social impact.
“As more clients have become interested in investing capital for impact, we have created a partnership between Northern Trust’s Corporate Social Responsibility group and our Foundations & Institutional Advisors group to share our direct experience of investing capital for impact. This partnership, Social Impact Advisors, works directly with foundation and institutional clients as an extension of their investment management relationship.”
Because collaboration between well-informed philanthropists creates powerful synergies, this strategy likely amplifies philanthropic social impact, too.
J.P.Morgan did not identify an executive whose work incorporates social impact analysis, but Kristen McNamara, banker, J.P. Morgan Private Bank, enjoys working in this space. Because the influence of millennials and the dramatic growth in the percentage of wealth controlled by women helps drive the increasing role social impact plays in business and investing, this is a smart career choice for this junior banker.
McNamara explains, “It is important that clients’ investments align with their specific financial objectives and personal goals. Screening and performing research on potential investments is key to begin. Then, investors can think about investing according to specific environmental or social themes, as well as the potential impact of companies or funds.”
Next, McNamara describes a three-step process. “Test the waters… test implementation through a [small] carve-out in their portfolios. Create an impact-driven carve-out. [Designate a larger percentage of the portfolio to impact investing]. Pursue broad integration… adopting a sustainable investing lens across all asset classes.”
Wintrust Financial not only gives strategic consideration to social impact, but it also provides an excellent example of the power of embedding good values in core banking practices. Founded by Ed Wehmer as Lake Forest Bank and Trust in 1991, the bank thrived by immediately developing strong community connections, looking for opportunities to help, and prioritizing quality of life for employees.
“To be a successful community business, get the community involved and treat people like you want to be treated,” Wehmer says.
Not surprisingly, Wintrust just kept replicating its good values and community-centric model as it rapidly expanded. Now it consistently ranks among Chicago’s very top financial institutions.
Wehmer’s perspective confirms Harris’ statement about constituencies and communities served, too. Incorporating a larger number of them into the core business model ultimately leads to a better bottom line.
Hopefully this impact investing trend will continue to build on itself — generating greater knowledge, better advice, and more lives made better with each passing year.