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

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sailJ.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:

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

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Stand out by being a CSR thought leader

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

reputation

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 and leaders are saying they get it

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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.

Siri, What’s “sustainability”?

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“Man is the creator of change in this world.” — Steve Jobs

How will Apple speak to its growing audiences, sustainability issues and public perception?

Just sustain it

Define “change”.

Admit it.

Sometimes, you just scan the headlines, right? And they impact on you, right?

Take a look at this one:

Siri, Do You Use Slaves?

Would you want this headline related to your product? Even if you are the biggest company in the world by market cap — or maybe, especially because you are.

Heinrich’s headline (it’s a link) made very clever use of John Stewart and The Daily Show. As Apple’s market cap has grown, so has the target placed on its brand.

And why not? Didn’t Apple make its marketing focus Microsoft (the market cap leader at the time) for years? When you become the biggest company by market cap in history right now (see below article), you have to expect this.

(By the way, The Daily Show’s taken on Apple before.)

Heinrich understood how to reframe Apple advertising well. She used a guerrilla headline to attract attention to her cause.

Expanding. Digital. Universe. There are a lot of target audiences out there.

Apple’s stepped away from greening its brand. It’s supply chain has been held up as wanting.

It doesn’t matter if Apple’s competitors are using the same supply chain (some aren’t and others are paying a lot more attention to sustainability issues.) As concerns over its closed system, sustainability, patents, etc., increase regarding the Apple brand, it’s likely we’ll see more media stories, more anti-Apple posts, challenging, satirizing or taking a negative position on Apple.

Right now, it’s hype season. The iPhone 5’s coming out. Biggest market cap in history a few days ago — ok, so that wasn’t correct, but …

When you become the biggest corporation, you’d better consider the competitive threats. Big market cap means big target audiences. Audiences have opinions.

Remember BP? Remember “Beyond Petroleum”?

When BP CEO Tony Hayward began massive cost-cutting at BP, it’s focus on sustainability went out the window. What happened in 2010 with the Deepwater Horizon Oil Spill will go down in history as one of the greatest of environmental disasters.

The disaster is now synonymous with the BP brand and a 50 per cent drop in stock price. It could have been avoided with proper risk mitigation. Sustainability leads to risk mitigation.

While Apple doesn’t face the same obvious dangers to its business that the oil industry does, it’s decision-making processes regarding sustainability may be moving in the same direction as BP. They’ve both spent a lot of time and resources in court.

Is innovation better done in the lab or in court?

Above image sent out on Twitter in response to Apple v. Samsung

iPhones have supply chain and waste issues, don’t they?

The big time: Siri, What’s “market cap”?

Audiences have opinions. Apple worked a philosophy that countered Microsoft’s, but Apple’s history isn’t going to fade away. It’s going to be subverted and used against the Apple brand. Apple doesn’t exist in a vacuum.

It’s made the big time.

Apple is awash in cash. It’s sheer size makes the company’s margins and business seem unsustainable. Doesn’t it make sense that Apple would move more toward sustainability? That it would want to improve its image from a sustainability/CSR perspective?

Isn’t that what leaders do?

Or do they litigate endlessly?

Sent by user on Twitter under #boycottApple

How does such litigation reflect on brand?

Apple has almost $117 billion in cash. Exactly the reason why people like John Stewart are taking on Apple. It’s not the “little guy”.

It’s a behemoth.

Like it or not, when you’re the biggest company in the world, stakeholders expect accountability. They expect a leader. Not just in innovation. Not just the “cool” of the product you’re creating.

But a leader in best practices, too. Across the board.

And “browning” your brand isn’t that cool. Especially when you spend cash litigating aggressively.

Stakeholders want what’s open and honest.

While Apple v. Samsung wasn’t related to Apple’s de-greening, it shows how aggressive audiences embrace issues and attack a brand accusing it of “brandwashing”.

What of a company’s own employees?

… organizations should maintain their commitments to
customers, the environment, human rights and
communities or risk significant decreases in
employees’ perceptions of their organization’s CSR
commitment …

Leaders?

Business leaders ranked the top three benefits of investing in or pursuing socially and environmentally responsible
practices as follows:

  • Positive organizational reputation;
  • Higher or sustained employee engagement; and
  • Eliminate/reduce impact on the environment.

Does momentum last forever for the largest company by market cap? Not usually.

Global research conducted by Hewitt revealed that organizations with high engagement generated total shareholder returns that were 29% above average.

Above quotations from:

CSR as a Driver of Employee Engagement — Hewitt

As Costco CFO Richard Galanti has said about CSR:

It’s not about applying to the ‘beauty contest’.

Sure it’s about great products and profits, but it’s also about a corporate vision of a sustainable future — a sticky, feel-good sensation that stands for something beyond profit. It’s about who you are as a corporate citizen. About what your vision is for humankind.

After all, isn’t “man the creator of change in this world”?

With great power comes great responsibility.

— Stan Lee (creator of Spiderman)

Related articles and links

Should companies invest in sustainability?

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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

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