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The Slow and Steady Rise of Impact Investing

By
Amberjae Freeman
April 29, 2017
11 min read
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We take a closer look at the ‘impact’ behind impact investing.

You can't practice impact investing withouth access to high-quality data from publically traded companies. Corporate carbon emissions, worker safety standards, toxic waste policies—investors need to see all this info and more, or they’re shooting in the dark.

Luckily, there’s a ton of information like this available these days. Which might lead you to assume that the recent surge of sustainable investing products came from a sudden, benevolent willingness of companies to collect and provide this data.

But no. There’s actually a long history of shareholder activism and protracted legal battles to thank for the trend. Decades ago, socially-responsible investors (and the non-governmental organizations [NGOs] they formed coalitions with) began fighting hard for increased corporate accountability and transparency. Slowly, steadily, their efforts have paid off.

The tools of change: Voting proxies & shareholder dialog

So let’s say you’re one of those activist shareholders who wants to help a corporation become more responsible. How would you go about it?

You’d probably start by using shareholder dialog and voting proxies, two tried and true methods for prompting corporate behavior change.

As shareholders, ESG investors have a history of launching persistent, long-term campaigns to educate companies and their fellow shareholders about the social and environmental impacts of certain business practices. These campaigns also point out the potential negative effects of ignoring such concerns on the brand and bottom line. Investors request environmental and social disclosure information again and again—and again, if necessary—until companies take notice.

Then there are voting proxies. As a shareholder, the stock you hold represents an ownership stake in the company. Which means you get a say when it’s time to elect the board of directors and vote on corporate policy. Companies are required to issue a document called a proxy statement before their annual meetings, so that their shareholders can weigh in. And guess what? These proxy statements often include opportunities to vote on issues like environmental management, executive compensation, and political lobbying. When shareholders band together, their votes can nudge the company in a particular direction.

It’s a long road to travel, but dialog and proxies work: They’re how we got to the level of corporate disclosure and increased accountability we enjoy today.

Voting proxies & shareholder dialog
Voting proxies & shareholder dialog

Shareholder advocacy groups help investors fight the good fight

Sometimes proxy votes and shareholder dialog aren’t quite enough to move the needle as fast and as far as investors would like—or the planet needs. Shareholder advocacy groups, like As You Sow (AYS), are experts at applying other kinds of positive pressure to create change.

Case in point, back in 2008, As You Sow put forth a shareholder proposal, in an effort to convince Best Buy to create an in-store electronics take-back program. The shareholder proposal was withdrawn when Best Buy agreed to pilot a take-back project at 100 stores in three regions. After a successful pilot in 2008, AYS helped Best Buy implement the program across more than 1,000 stores. 1.5 million electronic items were collected the following year, and that number jumped to 2 million in 2010. That’s millions and millions of pounds of electronic waste kept out of landfills and incinerators.1 

The Materiality Matrix is a huge sign of progress

Over the years, as investor pressure convinced companies to collect and report social and environmental data more regularly, they noticed something they hadn’t expected. The information actually helped them save money and improve production processes. It turned out that all this tracking and reporting was a huge win-win.

Companies started plotting their corporate social responsibility (CSR) initiatives against factors like attractiveness to stakeholders (“Consumers love this!") and the potential for business success (“This could help us be more profitable!"). This chart is called a Materiality Matrix, and it helps companies think long term, track their progress against sustainability goals, and make smarter decisions about which initiatives to invest in. Score another point for activist investors—the Materiality Matrix is a tool that benefits everyone.

In Conclusion

A lot of progress has been made in the last few decades. But there’s certainly more work to be done. Slow and steady has set the pace to win, but the time for all of us to act is now. Just look around or turn on the news: we’re at a tipping point. Impact investing has won many battles, but the biggest challenges lay ahead.

1 Electronic Waste and Best Buy http://www.asyousow.org/about-us/our-impact/electronic-waste-best-buy/ 

2 Emily Chasen. "More Companies Bow to Investors with A Social Cause.” Wall Street Journal, March 31, 2014 https://www.wsj.com/articles/SB10001424052702304157204579471383739569084

3 Trillium News. “Home Depot’s Endangered Forest Policy: The View From Five Years Later,” Trillium Asset Management, June 28, 2004 http://www.trilliuminvest.com/home-depots-endangered-forest-policy-the-view-from-five-years-latera/

4 “History of Impact Investing,”The SRI Conference http://www.sriconference.com/about/what-is-sri/history-of-sri.html 

5 Mark Fulton, Bruce D. Kaplan, and Camella Sharples. “Sustainable Investing: Establishing Long Term Value and Performance” DB Climate Change Advisors, June 2012https://institutional.deutscheam.com/content/_media/Sustainable_Investing_2012.pdf 

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