From Values and Futures to Mandates and Investment Strategies
Making investments that reflect your values seems simple at first, but requires an iterative process of exploration and learning to be confidently realized. In this webinar, Britta Gruenig Castelli, Coaching Program Lead at CSP, discussed what it means to translate personal values into investments. She has a decade of experience in guiding next generation investors along the introspective journey towards value-based decision-making.
Currently, her role at CSP involves supporting the teaching programs with coaching to support individuals in a process of discovery and strategy implementation. As Michelle Obama puts it: If you don’t get out there and define yourself, you’ll be quickly and inaccurately defined by others. The same applies to impact investing according to Britta. “If you do not put your money where you believe it should be, it will quickly be redirected somewhere else,” she says.
Britta was joined in this webinar by Sam, an alumnus from the first cohort of the IRI/CSP Impact Investing for the Next Generation Program. Sam’s journey begins in a time when he was fundamentally disinterested in investing, when he helped found and run a subsistence farming social enterprise in Tanzania. While in Tanzania, the region was struck by drought leading to famine. The impact generated by the farm ran to a standstill, and Sam quickly realized that he could have a bigger impact in the world by putting all of the resources available to him to work.
Since then, he has defined his mission — to create a world in which every person has the opportunity to achieve their fullest potential. Now his investment decisions are guided by his personal values, in addition to the investment knowledge that he gained. His personal investment policy aims for 100% sustainable and impact investments.
Aligning investment strategies with personal values is key to creating a sustainable future. As Sam says: “Get to work! We don’t have time to lose to create the future that we all want to see.”
Highlights from the Q&A with Sam
1. We have a financial advisor with several mutual funds and it’s difficult to have visibility of the various companies buried in the portfolio. Do you recommend looking at a few so you can really understand their impact, or to just try and understand a sustainability rating of the whole portfolio?
This is really something that you should discuss with your financial advisor and not take unqualified advice on, but here is my unqualified opinion. The subtext of your question is really important — the significance of knowing what you own. It’s both very important and a basic responsibility of any asset owner.
There are reasons why investment advisors allocate client funds to multiple mutual funds that themselves own many individual securities, all with the principle justification of diversification. A very good conversation to have with your investment advisor is: what does diversification in the portfolio really mean and how many individual securities does one need to own in order to be properly diversified? If you’re uncomfortable with the fact that it’s very difficult to know what you own, that’s an essential conversation to have with your advisor.
Once you know what you own, you can assess whether or not it is aligned with your personal or family values. This also allows you to understand the impact of your investments in the world. Some people are very interested in assessing that at the level of each individual security that they own. However, your advisor should be able to provide you with a sustainability or ESG score at the mutual fund level. Some people are satisfied with that kind of roll-up score, some people are not. The fundamental point that I would emphasize is that it’s really important to make your preferences clear to your advisor and to make a detailed assessment of whether or not your investments are reflecting your values, preferences, and needs.
2. Would you consider commodities as part of an impact portfolio?
One of the essential tenets of impact investing is the recognition that all investments have social and environmental consequences, as all companies create social and environmental impact — positive or negative — through their products, services, or operations. This is particularly apparent when it comes to the extraction of natural resources or the production of basic food staples. So, a good place to start is to simply ask yourself the question: What are the social and environmental consequences of this commodities investment? Am I directly contributing to environmental or social harm, or signaling to the market that I’m willing to ignore the impact of extraction in order to achieve my financial objectives?
Alternatively, there are a variety of “sustainable commodities” investment products available in the market, such as sustainable timber or agriculture funds. Whether or not any of these commodities investments fits into an investors portfolio depends on their values, impact goals, and financial needs.
3. Where and how do your values actually get incorporated in a concrete/structured way in the investment process?
First, in the development of my investment policy statement. My values directly influence the financial and impact objectives that I set, and also the constraints I establish on the portfolio. When I set these objectives and constraints, I had my statement of values in front of me and asked myself the question: what do my values tell me about the kinds of goals and limits I should set for my investments?
Second, in the development of my asset allocation. My values of courage and patience, for example, guide me towards more investments in illiquid asset classes with longer time horizons, potentially higher risk, and, I expect, higher impact and financial return.
Third, in my selection of investment managers. Investment funds are partnerships, so I seek partners whose strategy, culture, and operations demonstrate alignment with my own values. Lastly, in my approach to assessing and iterating on my investment strategy over time. The development and implementation of an investment strategy is an iterative process, so my values guide me in the ways I assess “success” and “failure” in the portfolio and how I explore new approaches or investment categories.
4. What are the trade-offs and compromises when moving to impact investing? Are they worth it?
Impact investing, per se, doesn’t require a greater number of tradeoffs than any other approach to investing. Conventional investors, who ignore their values and the social and environmental consequences of their investment decisions, are very clearly choosing one set of values (financial) over others (ethical, social, environmental) when they make investment decisions. Historically, we have simply ignored the reality of that trade-off.
The reason I’m so passionate about impact investing is that I believe it’s a more honest, reality-based approach to investing. Businesses exist within a social and ecological context — our society, environment, and economy are all inextricably interwoven with one another. Impact investing as an approach encourages and enables us to make decisions in recognition of that reality. At times, we may be confronted with investment choices in which the creation of positive social and environmental impact comes at the expense of maximizing financial returns — or vice versa. Those are hard but good choices that reflect the complexity of the world we live in.
Nothing could be more worthwhile than fully engaging that reality when making important choices that affect our own lives and the lives of everyone and everything around us!
5. How do you see public equities as having an impact? Do you just hold those as you need to have something liquid, or do you see a deeper impact purpose in holding those?
I hold them as part of a diversified investment strategy and I would say I am modest in terms of what impact I could personally achieve in terms of my public equity allocation. I do believe that large corporations have an incalculable impact on the world, so I think that any impact investor who has an allocation to public equities has an opportunity and responsibility to be an active owner. Thus, most of my investments within my public equity allocation are in funds that do shareholder engagement.
I also think that there is value in investors signaling to the market that they value sustainable corporate behavior. So, again, from the perspective of additionality, I don’t think that I am changing the world by investing in funds that employ rigorous sustainability-based investment theses. From an impact perspective, there is abundant research that shows that for public equities shareholder engagement is the best way to have an impact, but signaling the value of sustainability through ESG funds matters too.
6. The virus has shown the inequality deeply embedded also in western/developed countries. How can impact investing support in mitigating the impact of the COVID-crisis and ensure that inequality does not worsen?
Two reflections. One — it’s so important for those of us that spend a lot of time in the impact investing world to recognize with humility the limited impact that we can have on the world through our investments. We can have great impact, but impact investing is not a panacea and there are huge systemic challenges that are not best addressed by investing. In the context of responding to a pandemic, there will be opportunities to invest in enterprises that are helping improve social and ecological resilience that can minimize the long-term harm that this pandemic creates and also prevent the likelihood of the next one occurring.
We have to be particularly mindful and aware of the risks that our investment strategies have of perpetuating the systemic inequalities that are creating the problems that we’re trying to address in the first place.
7. How do you construct the portfolio? Is it handpicked? Do you follow a model? And also, do you put more emphasis on surging sectors?
I rely on my very capable investment advisors to do the basic portfolio construction, and we choose individual investment managers together. We have a target asset allocation that was created based on my financial and impact objectives and constraints. I do emphasize certain sectors in my investments, based on my impact objectives and beliefs about the long-term financial effects of social and environmental forces like climate change and inequality.
8. How do you place pure philanthropic activities along with impact investing?
My advisors recommend a certain number of VC or PE funds every year, and I use my own professional networks to source other investment ideas. I strongly believe that business and finance are the right tools for solving certain issues but not others. I focus my philanthropy on social and environmental problems that are not likely to be solved any other way than through donations.
I find it particularly useful to think in terms of a continuous spectrum of resource deployment. I have lots of levers to pull to create positive impact, such as investment capital, philanthropic capital, my work, my network, my voice, my spending, and so on. I want to pull each of those levers in coordination with the others in order to maximize the likelihood that I can achieve my mission, in accordance with my values.
Upcoming webinars
May 14th at 15:00–16:00 CEST
Changing the world as an investor — what to do and what not to do
Dr. Julian Kölbel & Florian Heeb
Register here to participate in Julian and Florian’s session:
https://zoom.us/webinar/register/WN_CYq-k0CSRmCYOCALl3Hyqw
May 21st at 17:00–18:00 CEST
Impact through funding social movements and activists
Antonis Schwarz & Romy Kraemer
Register here to participate in Antonis’ session:
https://zoom.us/webinar/register/WN_Eu3xl7nURm665TbOGiYvKQ
June 16th at 16:00–17:00 CEST
Faith-based investors and impact investing
Taeun Kwon
Register here to participate in Taeun’s session:
https://zoom.us/webinar/register/WN_xDeb8ou-SBGwFoVyo57xMw
September 30th at 16:00–17:00 CEST
Family Dynamics & Impact Investing — Mapping out a Family System, Finding Allies and Pulling the Right Strings (and Avoiding the Pitfalls)
Dr. Falko Paetzold
Register here to participate in Falko’s session:
https://zoom.us/webinar/register/WN_SrPanE_BSQ-wM7i19cS5dA
- Schedule subject to slight changes.
The webinars are brought to you with the support of EIT Climate KIC and FC4S. Warm thank you for the collaboration!
