Impact investing: J.P. Morgan and GIIN show the positive growth of impact investments

J.P. Morgan and the GIIN release study showing the impact of impact investments on fund managers and client investors

Sailing into the future, we can no longer tilt at windmills

96 per cent of participants measure social and/or environmental impact and 75 per cent of fund managers say the impact measurement factor is important in raising capital

In 2012, impact investors moved forward gaining attention and assets.

J.P. Morgan and the Global Impact Investing Network (GIIN) conducted a study confirming the growth of impact investing. It’s difficult to understand what “portion of the market” the study has captured, but the survey sample has “almost doubled” from the previous year, and so, offers a “rich data set”.

Here are some of the highlights of the study:

• $8 billion U.S. went to impact investments in 2012
• $9 billion U.S. is expected for 2013 (an increase of almost 12 per cent)
• 96 per cent of participants measured their social and/or environmental impact
• 75 per cent of fund managers highlighted the importance of impact measurement for raising capital

Considering 96 per cent of participants measured social and/or environmental impact and 75 per cent of fund managers said the impact measurement factor is important in raising capital, the investing landscape looks to have changed. While participants who are already managing a significant amount of impact investments were chosen, participants weren’t exclusively impact investors, but they did see the benefit in impact investments.

Are these participants simply new impact investors? No.

• 42 per cent were making impact investments over a decade ago

Where were they located?

• 56 per cent of respondents were in the U.S. and Canada

How many were fund managers?

• More than 50 per cent were fund managers

Did these investors have a narrow focus when it came to sectoral investments? No.

• 86 per cent of investors focus on multiple sectors (top three respectively)

1. Food and agriculture
2. Healthcare
3. Financial services (excluding microfinance)

Was social/environmental impact important? Yes.

• 50 per cent focus on social impact
• 45 per cent focus on social and environmental impact

Did participants use private equity/debt?

• 83 per cent use private equity and 66 per cent use private debt

Respondents identified the top challenges to the growth of the impact investment industry today as being:

• “lack of appropriate capital across the risk/return spectrum”

and

• “shortage of high quality investment opportunities with track record”

Government impact

… there is a crucial role for governments in facilitating the transition to an economy that is much more efficient, much more fair and much less damaging … Countries that lag behind will inevitably face increasing competitive disadvantage and lost opportunity.*

When it comes to the role of government in impact investing, respondents cited the following as “very helpful”:

• 35 per cent said “technical assistance for investees”
• 32 per cent said “tax credits or subsidies”
• 27 per cent said “government-backed guarantees”

Without doubt, government continues to be important to impact investing.

How did impact and financial performance do?

According to respondents:

Impact Performance

• 84 per cent reported their portfolio’s impact performance was “in line with their expectations”
• 14 per cent reported their portfolio’s impact is “outperforming expectations”
• Only 2 per cent said they were underperforming

Financial performance

• 68 per cent said they were performing “in-line”
• 21 per cent reported outperforming

and,

• 11 per cent underperformed

Product providers and the degree of interest by investor clients for impact investments

Obviously, product providers and investor clients play an active role in present and future impact investments.

• 86 per cent felt “many” or “some” investors are starting to consider the impact investment market

Eighty-six per cent is a large number. One that further illustrates growing transparency and volume of information is affecting investors as much as other stakeholders.

Sailing into the future

The bottom line: A wind blowing at a 12 per cent growth trajectory

The investors in the survey:

• Committed  $8 billion U.S. to impact investments in 2012

and,

• Plan to commit $9 billion in 2013

… approximately a 12 per cent increase year-over-year.

Since 96 per cent  of respondents measure their social and/or environmental impact, and several studies are confirming CSR as a growing business function (find one here),  there is change in the scope of and business case for impact, CSR/sustainability investing.

What may have seemed like an exercise in tilting at windmills two or three decades ago is now a growing data set showing that the investing world is changing.

If the only thing we can count on is change, forecasting the future will include the impact of investments and their ability to focus the positive power of enterprise.

You can find the study here.

* Steven Peck and Robert Gibson, “Pushing the Revolution,” in Alternatives Journal, Vol. 26, No. 1 (Winter 2000).

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Find related information on reputation and CSR/sustainability here:

• Reputation. Reputation. Reputation. Your key differntiator: Corporate Social Responsibility
• Customers continue to fuel business case for sustainability 
• Should companies invest in sustainability? 
• You’ve got to do something about your reputation: Why you need to pay attention to reputation management 
• Brave new reputation: What CEOs need to know 

Other related articles

Forget The Big Bucks…Today’s Investor Also Wants A Different Kind Of Return On His Money (forbes.com)

Reputation. Reputation. Reputation. Your key differentiator: Corporate Social Responsibility

Stand out by being a CSR thought leader

“In the business world, the rear view mirror is always clearer than the windshield.” — Warren Buffett

A study by Adam Friedman Associates continues to confirm the importance of Corporate Social Responsibility (CSR). CSR’s becoming a harder asset.

Executives from Fortune 1000 organizations said that the C-suite and/or board of directors involve themselves directly in “decision-making and measurement processes with regards to the company’s CSR programs.” There’s lots of talk about being different but when it comes to CSR and “getting it”, decision-makers at the forefront of thought leadership understand that CSR is a key differentiator.

Be different. Be better.

Who are you? What do you stand for? Where are you going?

Competition is fierce. Tools that define who you are and what you stand for as an organization show a company to be forward-thinking with a strategy that reaches beyond the latest quarter and far into the future.

The C-suite’s talking about CSR. Executives are more and more conscious of how CSR contributes to business.

CSR: Growing. Growing. Grown.

Results of the study show:

[T]here has been an expansion in scope and focus of CSR strategies and resource allocation. Many CSR initiatives were created in response to environmental issues and pressures, but companies are now expanding their focus to social, health, diversity, labor and safety issues. While many companies still focus much of their time and resources on environmental issues, CSR has grown to include almost any issue or concern that affects the operations and reputation of the company.

So, CSR is growing its influence.

More measurement. More third parties.

Measurement’s still not universal. But there are more third parties involved and more supplier audits. Of course, reception of programs by consumers and media are important and impact evaluation.

Transparency and volume of information have made consumer opinions more important than ever.

CSR and profitability are clearly linked for many corporations. Today’s thought leaders no longer see CSR “as a ‘soft’ discipline within the corporate structure”.

CSR directly affects profitability.

Integrate. Maximize. Get results.

Still think social media is a digital smoke screen?

The study found:

Social media has become an important tool companies use to communicate to their publics about their CSR efforts in addition to traditional media. This allows companies to communicate their CSR activities and progress in a manner that is fast, easily accessible and provides them with vital feedback from their publics.

Companies are using social media to supply their stakeholders with information and content. They are building online communities.

Companies are using social media to find out what their stakeholders care about. They’re using incoming messages to help craft future social media strategies.

Thinking strategically, companies have embedded CSR communications deep into their overall communication strategies. Employees are using social media to measure the effectiveness of CSR.

Everything that makes CSR disappear, makes CSR stronger:

In integration, find strength

Some executives believe:

[T]he CSR function may disappear altogether as corporations begin to absorb CSR into all aspects of their business and make it a part of every employee’s responsibilities. As companies begin to assess and measure the effects their CSR programs have on the business’s reputation, CSR may increase in both scope and importance. Based on the interviews conducted, some CSR practitioners said they believe CSR should not be its own function or department but rather an integrated part of the business … Senior executives should pay more attention to the views of their external stakeholders when developing CSR strategies because their sentiments will affect the company’s reputation and/or its position among competitors.

The study found businesses need to look at CSR as a growing function. CSR strategies should be integrated into all areas of business.

In a world where the media is full of stories of corruption, best practices will continue to resonate.

Loudly.

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Find the study by request.

Find more on reputation and CSR/sustainability here:

• Customers continue to fuel business case for sustainability 
• Should companies invest in sustainability? 
• You’ve got to do something about your reputation: Why you need to pay attention to reputation management 
• Brave new reputation: What CEOs need to know 

Customers continue to fuel business case for sustainability and leaders are saying they get it

Sometimes the simplest solutions are the most sustainable:

Helping businesses compete responsibly

Managements get it

Half do, according to a recent study:

MIT found 53 per cent of managements surveyed said sustainability initiatives have helped their companies profit.

With the wind of change at their backs, leaders changed their business model.

Policy and politcal pressure

The MIT study found that legislative or political pressure also plays a big role: 34 per cent of respondents citing the law or policy initiatives as affecting their ideas about sustainability.

People want sustainability built into an organization’s thinking.  They like the idea of sustainable products.

Two of the top three reasons leaders cite as being reasons for changing their business is the value proposition that is sustainability.

The art of listening

The automotive industry and the energy and utilities sector, often criticized for not being green enough,  finished first and second in making a business case for sustainability. Both industries were over 40 per cent.

Lagging

But technology and communications and the financial services sector scored low at 27 and 21 per cent respectively. These sectors have potential. If they’re behind, there’s opportunity for smart businesses in tech, communications and financial services to take the lead where competitors are lagging.

Publics are hard to ignore

Even companies like Apple, challenged regarding their supply chain, have invested in sustainability. The creation of their solar farm in Maiden, NC, (under pressure from environmental critics?) gives the company a positive. But Apple was recently hit with another bomb regarding its supply chain. Because of the company’s enormous cash horde, critics are unsympathetic, feeling Apple could do more.

Studies show the advantage of brands differentiating themselves through sustainable thinking.

If consumers and legislators are demanding more sustainability planning from companies, and businesses that haven’t been viewed as green traditionally are committing themselves to sustainability, can other companies afford to miss out on the potential value add?

The edge in keeping consumers happy

It seems like the pressure from consumers is something thoughtful managements have foremost in their minds.

As public relations and marketing find themselves increasingly challenged by astronomical growth in channels and tools, the obvious answer points to embracing sustainability and CSR as a strategy: Managements themselves say sustainability adds value.

Sometimes the simplest solutions are the most sustainable.

Follow @JohnRondina

Related articles

• Should companies invest in sustainability?
• A crisis of ethic proportions (wsj.com)
• Video: Building A Sustainable Product Lifecycle (sloanreview.mit.edu)

Should companies invest in sustainability?

Good times. Bad times.

Corporate Social Responsibility? Sustainability?

Are these ideas and a strategy better left for the good times? Post-financial crisis can a business really afford to “green” itself or think about scarce resources?

Saving on energy costs hits the bottom line. But some sustainability projects add costs. Are they worth it?

Yes. They are.

In the post-financial crisis environment, long-term thinking is as appropriate as ever. Just how are companies who have made an authentic commitment to sustainability doing?

Long-term thinking

In 16 of 18 industries studied, A.T. Kearney found:

Companies recognized as sustainability-focused outperformed their industry peers over both a three and six-month period, and were all protected from value erosion.

Let’s talk results:

• Over three months, the 99 companies studied outperformed by 10 per cent
• Over six months, by 15 per cent

Such outperformance in difficult times is remarkable.

Companies were part of the Dow Jones Sustainability Index or the Goldman Sachs Sustain List.

Risk management and sustainability: A partnership

The study suggests that:

Prudent risk management practices often evolve from the same approaches used to develop and execute long-term strategies to avoid disruptive events from occurring due to weak links in the supply chain …

So … Sustainability planning may have a bigger impact on long-term business performance than many think.

Sustain outperformance in bad times

In some sectors of the economy, companies practicing “true” sustainability showed remarkable outperformance:

• Financial services by 25 per cent
• Media by 33 per cent
• Automobiles and parts by 33 per cent

True strategic efforts toward sustainability have shown their worth even during trying times like the financial crisis. While some companies will take a “lip service” approach with purely tactical short-term endeavours geared toward winning awards, the strategic approach toward sustainability will produce concrete dividends even in challenging times.

More importantly, it was the worst of times

It’s not about short-term reputational gains. It’s about long-term gains and avoiding the disasters that short-term thinking so often lead to.

Strategic policies like the United Nations Global Impact, where companies follow:

… universally accepted principles in human rights, labor, environment and anti-corruption … embedded into daily business practices and … applied to supplier codes of conduct, company policies, and compliance procedures for confidential reporting and auditing, among other areas …

… have an effect on the bottom line.

In light of the growing fallout over Wal-Mart’s activities in Mexico, the evaluation of cost and commitment regarding sustainability over the long-term looks highly positive, especially since it outperforms against the average even during the worst of times.

It doesn’t take a rocket scientist to understand the damage to reputation and shareholder value the Wal-Mart allegations will lead to if they’re found to be true.

But reputational damage happens the moment allegations are made, the moment the media picks up the story. Shareholders sell fast. Headlines have immediate impact.

A brand branded with a headline related to bribery, or even supply chain issues, lasts long in the memory.

The best crisis management continues to be avoiding the crisis in the first place. A focus on short-term solutions leads to long-term crises.

Study: Green Winners

Follow @JohnRondina

Related articles

• More Voices Add to Calls for Shift to ‘Sustainable Capitalism’ (greenbiz.com)
• Responsible investments going mainstream (eco-business.com)
• Apathy is a barrier to good governance
• Why a brand matters

Brave new reputation: What CEOs need to know

The new boss sings the stakeholder electric

Reputation is turning into a harder asset in the highly digitized corporate world we find ourselves in. This trend will only increase as technology rockets us forward.

Do you know where your reputation is?

Companies need to think of themselves through their stakeholders. Clients, customers, employees, the general public, shareholders, strategic alliances — just some of the important relationships in a world of informational digital milliseconds.

Just as corporations depend on consumers to buy their products, companies depend on customers to consume their brand.

After they’ve digested that brand, what do they feel, think and say?

In You’ve got to do something about your reputation: Why CEOs need to pay attention to reputation management, I looked at reputation.

Let’s dig deeper.

Fombrun, business leaders and reputation management

What are reputations worth?

Plenty.

Fombrun outlines three ways reputation adds value.

• First, “reputation affects operating performance” resulting in increased profits
• Second, “profitability affects market perceptions of the company’s future prospects – and so, increases demand for the company’s shares.”
• Third, “the company’s operating activities … contribute to building ‘reputational capital’”

The shadow knows

In fact, the shadow consumes. In traditional and digital ways, it contains, or will contain, everything about an organization.

The perception of that information will depend, largely, on how a corporation prioritizes reputation, Corporate Social Responsibility (CSR), sustainability and related issues into its operational activities.

Fombrun says, “reputational capital” is a “shadow asset”, invisible but effective:

Intangible equity that humbly works behind the scenes in a company’s product brands or corporate brands — these days, often in zeroes and ones, expanding into the digital universe.

Bharawadj did a study of 125 manufacturing businesses. The study found “reputation and brand equity of the business … to be the best predictors of variation in business unit performance”.

Another study looked at a group of 435 companies rated in Fortune’s most admired companies. From 1984 to 1995, these organizations were better able “to sustain superior operating performance over time.” They were also better able “to improve operating performance over time.”

Bottom line? There are lessons to be learned from the financial crisis: Companies focused on sustainability outperformed peers by 15 per cent.

Fombrun provides substance for reputation building reputation. In effect, reputation gathers strength from itself.

So, the shadow is its own shadow asset.

Reputation. Stock price. Ownership.

In a study by Gregory on “brand power,” during extreme stock volatility from October 27-28, 1997, the research team discovered while all stocks fell on the 27th, the strongest brands regained almost all losses by the 28th.

A benign shadow supports brand

Less strong brands continued to founder. These brands did not have mighty reputations to deliver them from stock price purgatory.

While accountants feel operational activities like public relations, corporate philanthropy and advertising are best treated as direct business costs, Fombrun makes a thought-provoking point:

… it’s certainly ironic that accountants have been so conservative in their treatment of all reputation-building activities yet so willing to facilitate the capitalization of unearned income that enabled Enron, WorldCom and Xerox to claim inflated returns for so long …

In a post-Enron world, wise public relations practitioners and business leaders might note that brand-building and reputation-building sound concrete compared to the manufacturing of imaginary returns.

There is a difference between the invisible and the imaginary.

The financial value of reputation

Hanging a shadow on a signpost (or shadow valuation)

What if you could hang your company’s name out on a signpost and lease it?

Interbrand did just that. In 2002, at sales of $20 billion, assuming a higher royalty rate of 14 per cent (a royalty rate of 8-14 per cent of projected sales is common), Coca-Cola could realize a potential (royalty) rate on their brand of $2.4 billion.

Over 20 years, the Interbrand research team estimated this value of the Coke brand to be worth $69.9 billion.

Today, Coke is digital, social, focused on sowing reputational seeds in a new world of information.

Deep within its brand is everything stakeholders perceive Coke to be. Coke’s shadow delivers reputational capital.

If $70 billion doesn’t catch a CEO’s attention, what will? The shadow is changing rapidly. Move with the shadow or be outcast.

The figure isn’t perfect, but it reveals reputation has financial value despite its unseen nature.

Catch RQ during bull: The Shadow Quotient

Maybe the most valuable jewel in the cache of information Fombrun reveals is the development of the Reputation Quotient (RQ).

RQ focus groups revealed why people have high regard for some companies. They felt emotional appeal, products and services, financial performance, vision and leadership, workplace environment and social responsibility were the most important qualities affecting RQ.

Fombrun points out:

“Being well regarded is closely associated with a company’s earnings, liquidity, cash flow and growth — it’s operating results. Consumer ratings are therefore tied to familiar indicators that a company is well-managed.”

But being well-regarded pays off more in bull markets when the company’s stock price is on the rise than it does in bear markets when the opposite is true.

Companies gain when their stock price increases.

Spend some time with Fame and Fortune. Extrapolate Fombrun’s ideas to this new, digital paradigm. Demystify the unknown, difficult to measure, world of corporate reputation.

Reputation is in the cyber-ether. It permeates corporate space and the expanding online universe of stakeholder perception.

Any CEO who does not understand how reputation affects the bottom line, will, after reading Fombrun.

Business leaders and their companies will also benefit when they understand how to make exceptional reputations a reality in this brave new digital world.

Keystrokes? Swipes? Maybe simply gestures. Your brand and your repuation’s out there.

What is it saying?

Follow @JohnRondina

Related articles

• Corporate Reputation: A visit with the doctor
• CSR Is Much More than a Branding Exercise (environmentalleader.com)
• Wal-Mart’s U.S. Expansion Plans Complicated by Bribery Scandal
• Why a brand matters
• Best Brand Reputations 2012 Marketing/Leger Corporate Reputation Survey
• What Every Executive Should Learn from Wal-Mart’s Mistakes