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FEG uses Responsive Investing (RI) as an umbrella holistic term to encompass many types of investments related to economic, environmental, social, governance, or impact investments. We believe RI is becoming increasingly prevalent, with a number of implementation options as investors continue to dedicate more assets.
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Source: U.S SIF. "2018 Report on US Sustainable, Responsible, and Impact Investing Trends." |
Investors decide to invest in RI for a number of reasons including mission / social benefit, fiduciary duty / returns, risk, and client demand.1 There have been a number of studies showing an all-time high among respondents incorporating ESG criteria into their decision making, and that it will have a greater impact in the future.
Additionally, there are a number of issues that institutions are trying to address through RI. Since 2012, climate change and carbon emissions have been one of the most important to institutions, with more than $2.2 trillion invested in solutions.2
To learn more about the impact investing and ways to utilize intentionality, read our FEG Insight, Investing with the Head and the Heart.
A responsive investment (RI) is any investment made by an organization that seeks to gain both financial and social benefit. Some of the most common approaches to responsive investing are outlined below. Many organizations will use several or all of these approaches.
SRI investments are values-driven decisions to analyze specific industries or sectors. This often includes negative exclusionary criteria (ex. Exclusion of “sin stocks”).
Environmental, Social, Governance (ESG) is a holistic view of all aspects that can impact security value. ESG factors are a subset of non-financial performance indicators which include sustainable, ethical, and corporate governance issues.
Leveraging shareholder rights of public investments to express the organization’s mission and values.
MRI includes public or private investments that support a focused mission of the organization by generating a positive social or environmental impact.
Example:
A woman’s support organization makes a private equity investment focused on female owned or managed companies.
While in direct alignment with the mission, the return expectation is in line with the financial return expectations of other private equity investments.
PRI is a private mission-aligned investment that acts as a component of an organization’s grant-making.
Examples
A private foundation provides start-up costs to a charitable organization beginning a capital campaign.
Offering financing to a private non-profit to conduct a feasibility study to explore the opportunity of constructing a solar facility. If the facility proves successful, the loan is repaid. If it is not, then the loan converts to a grant and counts against the 5% required distribution.
Investments made with the intention to generate positive, measurable social and environmental impact alongside a financial return. In many ways an impact investment is similar to an MRI.
