Digital agency Animikii Indigenous Technology, located at the Songhees Innovation Centre in Esquimalt, B.C., is a recipient of investment from the Raven Indigenous Impact Fund.CHAD HIPOLITO/The Globe and Mail
Jory Cohen is the director of finance and impact investment at Inspirit Foundation.
Last month the Texas State Board of Education announced its intention to redeem approximately US$8.5-billion from BlackRock, an investment manager with a reputation for valuing social and environmental metrics in its investment decision-making, citing the firm’s negative effects on the state’s oil and gas sector. In the past couple of years, multiple state treasuries, including those of Florida, Louisiana, South Carolina and Utah, all decided to liquidate significant positions in BlackRock.
It’s no secret that impact investing, an investment philosophy that aims to generate social and environmental benefits as well as financial returns, has its skeptics. Recently, former U.S. president Donald Trump labelled this approach “radical left garbage.”
From a financial standpoint, this is a mistake. It’s very possible to employ impact investing strategies while avoiding a financial haircut. In fact, even as highly profitable fossil fuels and tech stocks dominate the financial markets, investing with an eye for social and environmental impact can lead to an increased probability of higher returns, especially over the long term.
Over the years, properly structured impact investing portfolios have demonstrated resilience in tougher markets and the ability to be opportunistic in stronger ones. Impact investing can be used to both protect downside (as in 2022) and seize upside (think 2023).
I would know. I manage investments for Inspirit Foundation, a Toronto-based organization striving for a more inclusive and pluralist Canada. The foundation leverages impact investing to further its mission and is publicly committed to the country’s first portfolio exclusively composed of impact investments.
Let’s look at one example in the foundation’s portfolio.
Since the beginning of 2020 until the end of 2023, the MSCI ACWI Index, a common global equities benchmark, has performed at an annualized 8.8 per cent. By contrast, the CI MSCI World ESG Impact Fund, a global equities fund that represents one of many impact investments in Inspirit Foundation’s portfolio, earned an annualized 11.4 per cent.
It did so through underlying holdings that are low carbon emitters and high ESG performers. There are no fossil fuel companies or “sin” stocks such as alcohol, tobacco or weapons. The majority of the holdings’ revenues are earned through products and services that contribute to the solutions of the world’s most pressing social and environmental challenges, such as Novo Nordisk (insulin supplier and producer of Ozempic) and Vestas (wind turbine manufacturer). These companies are addressing systemic needs, often disrupting established sectors in favour of more sustainable results, such as creating more accessible health care or transitioning to lower-emitting energy sources. The corollary is a growing customer base or lower cost market alternatives, and investors are noticing.
From a compounding perspective, if a hypothetical $10,000 was invested on Jan. 1, 2020, in both the ACWI Index and the World ESG Impact Fund, the investment in the index would be valued at $14,023 while the fund investment would be worth $15,373 by the end of 2023. That’s a meaningful difference – though, to be fair, 2024 performance hasn’t been as good.
Looking at another impact investment external to Inspirit Foundation’s portfolio, a hypothetical $10,000 investment at the beginning of 2020 in the Mackenzie Greenchip Global Environmental All Cap Fund would have yielded $16,856 by the 2023 year-end, a significant outperformance relative to the ACWI Index.
The World ESG Impact Fund isn’t perfect from a social and environmental perspective. While its allocations to sectors such as health care and (clean) energy are encouraging, there are some holdings in sectors such as information technology or consumer staples that raise important questions about how impactful the fund is.
But it’s a solid base that can be improved upon, especially given how challenging it is to achieve deep positive impact in the public equities markets. Impact investing can drive both financial returns and positive impact simultaneously if approached methodically. There are some portfolios that are either partially or exclusively composed of impact investments, and there is evidence that these allocations have both protected downsides and captured upsides with the positive nature of the underlying investments.
There are some loud voices decrying allocating capital with an eye for social and environmental benefits, but unlike positive impact and potential profitability, there’s little relationship between decibel levels and being correct, at least when it comes to impact investing.