The New York Times Speaks to Athena Capital’s Doug Cohen on “How to Invest With a Conscience (and Still Make Money)”
New York Times reporter Paul Sullivan defines impact investing as “a movement that aims to force social change by minimizing or eliminating investors’ exposure to companies that harm the world and achieve a solid return.” Finding investments that meet this definition across all asset classes, however, can be a challenge.
“Gone are the simple days when investing with a conscience meant excluding alcohol, tobacco and firearms from a portfolio,” said Sullivan. “Today’s impact investors want their investments to align with a more rigorous standard of good while achieving a maximum return.”
Sullivan spoke with Athena Capital’s Doug Cohen, managing director, portfolio management, to develop five tips all impact investors should consider.
Do Your Homework. Know which companies your portfolio is invested in and create a screening process that will include only the impact investments that meet your criteria, such as companies with defined social goals and have women in positions of leadership. Cohen also suggests looking at an investment’s historical returns before allocating capital. “Not all the options for impact investing have good track records,” said Cohen.
Define Your Priorities. One of the challenges of measuring “impact investment” is the variety of ways to interpret the term. “Everyone has a different definition of impact investments,” said Cohen. “Some people say no fossil fuels, and that’s their negative screen. Others say, ‘I understand these companies are going to exist, but I want to find the one that is doing it the best.’” Cohen also notes that a screening process that is too narrow can increase risk because clients may wind up investing in new companies or first-time funds without track records.
Fill the Gaps. Today the three most robust areas for impact investing are private debt, private equity and real assets. Most investors find that there are gaps in the market when it comes to big, publicly traded companies. The article suggests that investors may need to apply a “better than the rest” approach. For example, with this metric the oil and gas giant Exxon Mobil fares well relative to its peers because it has a diverse board.
Grade on a Curve. The individual trade-offs in impact investing make it difficult to create a general index like the S.&P. 500 to track performance. Human Impact & Profit Investor, or HIP Investor, is one company who has developed a measurement framework for impact investments. The HIP Investor Ratings provide a raw score for a fund in terms of impact on society as well as a relative score that allows investors to see how that fund performs against similar funds.
Set Your Expectations. Setting expectations is crucial in the selection and measurement of impact investments. Otherwise the manager will fail to deliver what the client wants. For example, one of Athena Capital’s clients wanted to invest only in hedge funds and private equity funds that were led by a woman. Not only where the options limited but what the firm came up with, said Cohen, were funds that he would not approve for all clients because of their risk. Cohen suggested a slight change to the client that reframed her expectations: Loosen the criteria to focus on companies with one or two women on the senior investment team. “That was the essence of what we were trying to get to,” said Cohen.
The full New York Times article can be accessed here.
Doug Cohen is a senior member of the Portfolio Management team and is responsible for delivering investment advisory services including asset allocation, portfolio construction, and other portfolio management-related services. In addition, Doug oversees the firm’s New York office.
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