Let’s Talk Impact Investing
No — it may be soup season but this newsletter is not about to dive into the alphabet soup of defining “impact investing.”
“Is it ESG? Is it like, ‘social investing? Maybe it’s something that philanthropy does?”
I was bored of that conversation 20 years ago and I’m out of my mind when I encounter it now because, as much as I want people to allocate to investments that are associated with positive environmental and social outcomes, it kills me to see them trapped in an assumption that only “impact investments” have an impact. Let me put this in bold:
All investments have an impact on the world because all companies, projects, and economies buy things, sell things, hire people, use energy, ship stuff, and make and lose money.
Impact investments don’t operate in a commercial sphere separate from “normal” investments and “normal” investments don’t operate in isolation from their impact. There are too many urgent issues — ahem climate change, ahem racial and gender equity, ahem political instability — to ignore the role that capital plays in it all.
Investors who ignore the impact of their investments ignore unquantified embedded risks in their portfolios. Real estate holdings without sufficient HVAC systems capable of cooling residents for extended heat waves, without white roofs, without affordable rents, will become harder to manage in weather patterns with more frequent heat waves. According to MSCI, only 22% of public companies fully disclosure their exposures to climate changes thereby leaving investors in the dark. On the plus side, climate adaptation calls for over $10 trillion in investment. With only $1.3 invested by the end of 2022, there is plenty of room to invest in the largest economic shift since the Industrial Revolution due to the secular trends of a transition to a low-carbon economy, global urbanization and social equity.
Here at Flat World, we don’t care what you call it as long as you can say that you know how your investments will weather market environments where climate effects, diversity issues, and economic issues are at play. We call it good investing.
Kate Starr, Co-Founder & Chief Investment Officer
Financial players have an important role in providing capital that bends the curve of GHG emissions. There are opportunities across asset classes and risk/return profiles to meet the needs of most investors. The US government is there to support not only through the Inflation Reduction Act, but also with the Treasury’s pursuit of climate goals in its relationship with China. Even without political consensus, the multi-trillion dollar climate investing opportunity is there for the taking with savvy investors able to take advantage of mispriced assets and avoiding liabilities.
If you’re not sure if your investment manager is attending to their exposure to climate risks and opportunities, ask them for their impact report. TIAA has published an extensive one and offers a good example to other managers for how to report on their climate impact.
For all of you who love your holiday carols sung in polyphony as much as I do, check out the Holiday Channel stream from NYC-based classical music WQXR.
This newsletter is intended solely for informational purposes, and should not be construed as investment/trading advice and are not meant to be a solicitation or recommendation to buy, sell, or hold any securities mentioned. Any reproduction or distribution of this document, in whole or in part, or the disclosure of its contents, without the prior written consent of Flat World Partners is prohibited
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