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​ESG / Impact Investing: Learn How to Evaluate and Start from our Experts

When BakerAvenue clients want to incorporate personal values and passions into their portfolios, we start by discussing their intentions for the investments.

One framework we use for these discussions is the United Nations’ 17 Sustainable Development Goals (UNSDGs) that were adopted by world leaders in 2015 at a historic UN Summit. In the past five years, there has been increasing alignment around using the SDGs as a common vocabulary to talk about impact investing and what clients hope to achieve.

For example, if their focus is the environment, that includes clean energy, climate change, and water. Or they may wish to support issues like equality, education, different types of sustainability for cities and businesses, etc. And although this is quite a comprehensive list, there are other purposes for which impact investing can be used, such as animal rights and welfare.

United Nations Sustainable Development Goals
Source: United Nations Sustainable Development Goals

Data of impact potential for thousands of stocks

The data to analyze publicly traded securities to align clients’ portfolios with their values is now available. We can screen for factors like a governance rating, a board’s diversity, greenhouse gas per unit of revenue, employee satisfaction scores, women in managerial roles, renewable energy projects, etc.

Plus we can review a company’s returns and social results. For example, if they focus on women-owned businesses in the developing world, we will see their financial reports as well as their impact reports on the demographics of people they reach, what countries, how access to capital is improving, etc.

Furthermore, we help clients understand the trade-offs of different types of bespoke strategy. They may be looking for market-rate competitive investments that are also impact-embedded. Or they might want something with an impact perspective that will be below market, and we will discuss potential implications for return or volatility.

How BakerAvenue Screens Public Investments
How BakerAvenue Screens Public Investments
Standardizing data

The financial services industry is moving closer to a consistent standardization of analytical screening, metrics, ratings, scoring, and other data to evaluate how a specific goal such as access to education can, or can’t, be achieved through a specific investment.

There are now standards bodies, including the Suitability Accounting Standards Board (SASB) and International Financial Reporting Standards (IFRS), that are helping to frame and align the disclosures companies need to provide, similar to the Financial Accounting Standards Board’s (FASB) guidance on accounting.

How to start making an impact
  • Understand what you already own, e.g., what are the exposures, are there areas you want to add exposure to, are there areas you want to avoid?
  • Know what you want to achieve based on your financial needs and goals.
  • Think about your personal values and what you’d like to accomplish.

Our role is to help incorporate those values into your broader, longer-term financial plan. We’ve found that encouraging action around the dynamics you’re looking for is a good way to think about responsible investing.

The Private Markets

The following are a few examples (not specific endorsements) of private companies that are focused on impact / ESG investing.

Previously, companies like these would not have attracted market-rate capital. But with the surging interest in aligning investments with values, three of the four are now considered market-rate competitive.

MicorVest

MicroVest is a Fixed Income Fund focusing on short-term financing to microfinance institutions. Microfinance is financing opportunities typically in developing countries, although not exclusively, for very small start-ups. They tend to focus on women-owned businesses to provide capital for aspiring entrepreneurs to start and grow businesses.

Map

MAP is a real estate fund investing exclusively in renewable energy and on-the-ground conservation. MAP funds projects that are directly replacing energy generated from fossil fuels where the projects add access to clean energy through a real estate strategy, which can be financially competitive.

Impact Engine

Impact Engine is a private equity firm that seeks investment opportunities that have the potential to drive both competitive financial returns and sustainable, scalable social or environmental impact. The firm looks at companies that directly improve education, health, economic empowerment or environmental sustainability.

Impact Engine

UNICEF has a bridge fund, through a donor-advised fund, with below-market rates offering a very low interest rate. It’s a line of capital, immediately available and replenished over time, for distributing supplies as quickly as possible in the event of a disaster.

Any suggestion of cause and effect or of the predictability of economic or investment cycles is unintentional. Past performance is never a guarantee of future performance. Baker Avenue Asset Management LP may currently own or have previously owned a specific stock or company referenced, and a list of our past holdings can be found at the SEC website. Click to view full disclosures.

Standardizing data

The financial services industry is moving closer to a consistent standardization of analytical screening, metrics, ratings, scoring, and other data to evaluate how a specific goal such as access to education can, or can’t, be achieved through a specific investment.

There are now standards bodies, including the Suitability Accounting Standards Board (SASB) and International Financial Reporting Standards (IFRS), that are helping to frame and align the disclosures companies need to provide, similar to the Financial Accounting Standards Board’s (FASB) guidance on accounting.

How to start making an impact
  • Understand what you already own, e.g., what are the exposures, are there areas you want to add exposure to, are there areas you want to avoid?
  • Know what you want to achieve based on your financial needs and goals
  • Think about your personal values and what you’d like to accomplish

Our role is to help incorporate those values into your broader, longer-term financial plan. We’ve found that encouraging action around the dynamics you’re looking for is a good way to think about responsible investing.

Because investments in companies that look to the future – such as improving carbon efficiency or using sustainable sourcing strategies for supply chains – will help people and the environment alongside financial return.

If you would like to learn more visit bakerave.com/impact-invest or to get started, contact us.

The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Baker Avenue Asset Management LP. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. All information is believed to be factual and up-to-date as of this writing and is subject to change. Before purchasing any investment, a prospective investor should consult with its own investment, accounting, legal and tax advisers to evaluate independently the risks, consequences and suitability of any investment.

Any suggestion of cause and effect or of the predictability of economic or investment cycles is unintentional. Past performance is never a guarantee of future performance. Baker Avenue Asset Management LP may currently own or have previously owned a specific stock or company referenced, and a list of our past holdings can be found at the SEC website. Click to view full disclosures.