The AVPN Knowledge Centre is currently doing a deep dive into how social investors manage their portfolios. This research which will culminate in a Guide to Effective Portfolio Management to be released in June 2017. Some interesting themes about the motivation of social investors have started to surface and we thought we’d use this months’ blog post to share some early findings.
What Motivates Social Investors?
Motivation for social investing can come in many forms – altruism and guilt seem to be the predominant themes historically. More recently with the advent of impact investing even greed has started to surface as a third form of motivation with expectations of market-rate returns for social investments.
In our research, we have encountered these three motivations and more. However, in our view, social investors are driven by the aspiration to build something positive rather than the desire to fix existing liabilities and weaknesses.
How do these Social Investors Organize their Portfolio?
This aspirational group is most often using a value-based investment lens to build and manage their portfolio. Consider this a guiding force by which portfolio managers conduct all of their activities from selection and due diligence (pre-engagement) to impact assessment.
Through our Portfolio Management research we’ve identified the 3 most prominent value-based investment lenses: Faith, Gender and the Environment, and will provide some interesting examples of each below.
In the faith-based investment category, we witnessed a focus on charity and a strong focus on human dignity and stewardship of the environment. The focus is on projects that help the poor or less fortunate. This is first seen in the selection of investments – excluding industries such as alcohol, tobacco, pornography or gambling.
For instance, Amana Mutual Funds Trust applies a screen based on the Islamic principles of investing and does not invest in industries that deal with gambling, tobacco, alcohol and pork.
Some social investors have also moved beyond pinpointing their faith as motivation. They emphasise on inclusive aspirations such as protecting the environment and decreasing inequality. World Vision is an international non-profit organisation that seeks to integrate its Christian beliefs and values into the relief, development and advocacy services that it provides. The organisation has evolved from a Christian charity into an INGO by fostering collaboration through the Asia-Pacific.
Gender lens investing has obtained more prominence in the last decade aiming to increase the share of girls, adolescents or adult women in entrepreneurship. The reasons for this are to promote gender equality, empower women and make a practical case for the inclusion of women as they increase the quality of decision-making, profitability and market performance. On the social investing side this is often merged with a focus on poverty alleviation. Organisations like Dasra or Kamonohashi Project are examples of this. Oxfam and Action Aid are international non-profits that centre their poverty alleviation programmes across the globe on gender equity and women empowerment.
The process of investing involves screening for gender diversity performance at the due diligence stage as well as tracking this performance throughout impact assessment. Gender lens investing goes beyond social investing as commercial investors are heavily involved. State Street Global Advisors became the first firm to introduce gender diversity into its exchange-traded fund (ETF) known as the SPDR Gender Diversity Index at the NYSE.
With sustainability principles such as the UN Principles of Responsible Investment (UN-PRI), this is the approach that has arrived in the mainstream investing landscape and is open to retail investors. It includes conservation of flora and fauna, alleviating risks in supply chain and production from natural resources plus climate change alleviation as well as intermediary services to enable social enterprises providing innovative solutions for environmental issues or disaster relief for climate change.
Kopernik is a social enterprise that seeks to bring sustainable energy and low-cost technology to the underserved. In terms of investments, RS Group, a family office in Hong Kong, decided to focus on climate change mitigation in its investment portfolio and as a result, divested from all investments in fossil fuel companies and reinvested in renewable energy and climate change mitigation initiatives.
In the social investing realm, our members use charitable means similar to Birdlife International as well third-party financing methods such as Nexus for Development. Others combine gender and climate change such as Women Organizing for Change in Agriculture and Natural Resource Management (WOCAN), which engages in advocacy and capacity building for women’s leadership through an innovative approach of partnering women farmers with professionals and building the support of men in the process.
We outlined the most prominent value-based investment lenses here, but motivations are often not as clearly identifiable. They may never acquire the labels we outlined here. All of these are also further influenced and changed by age, gender and education of the investor.
Next step in our research: how you can make your values financially sustainable over the long term. Stay Tuned.
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