Video: Impact Investing
Greg Mausz, chief operating officer at Preferred Capital Securities, and Jeff Shafer, co-founder and chief executive officer of CommonGood, discuss impact investing in the latest video from ADISA’s Focus on Alternatives, an educational series that covers key topics in alternative investing.
Impact investing is a strategy that seeks to generate positive returns while also driving social and/or environmental change. According to Shafer, the strategy is becoming increasingly popular with millennials and women, the vast majority of whom want to align their values with their investments. He explains the difference between environmental, social and governance (ESG) criteria and impact investing, how to find and evaluate such investments, why they are increasing in popularity and where he believes the space is headed, all while addressing the question, “Is it possible to make money and still ‘do good?'”
Video Transcript
Greg Mausz 00:08
Welcome to another edition of Focus on Alternatives brought to you by ADISA, the Alternative and Direct Investment Securities Association. For more educational content like this please check out the resource library at adisa.org. My name is Greg Mausz, and I’m joined today by Jeff Schafer of Common Good co-founder and CEO. Thank you for joining us.
Jeff Shafer 00:30
It’s great to be here.
Greg Mausz 00:31
Yeah, we’re gonna be talking Impact investing. Uh, can you start off by just defining what is impact investing?
Jeff Shafer 00:37
Yeah, impact investing is this idea of investing for not only financial returns but also social environmental type impacts as well. The key though is it’s about the outcomes so, you probably heard ESG. ESG is more about how a business functions now and today, impact is about the outcomes both financials and non-financial metrics.
Greg Mausz 01:02
OK, explain a little bit more about that how do investors find impact investing and how do they evaluate impact investments?
Jeff Shafer 01:11
Yeah, so this is what’s been so cool about watching this industry grow over the last seven years is you can find these much more prevalent today. But the advice I’d give people when they think about how to find or what is an impact investment, there’s really four things I would think about. One, define the expectation return that you’re looking at. So, there’s a common notion that you can’t make money and do good that’s concessionary, well actually there’s a lot of wonderful opportunities to make capital. But you wanted to find is this set up to try to make money or not? The second thing is intentionality of impact. So, are there is this manager, Is this company truly setting up a business to not only drive financial metrics but also the nonfinancial metrics? And then the other thing you want to look at is, are they reporting and measuring the different outcomes that they say that they are going to. And then finally you want to make sure it’s sustainable. Is it has a long term value are they extracting value are they creating value for multiple shareholders or all stakeholders actually?
Greg Mausz 02:13
OK there’s this myth out there, you know can you make money and still do good? Can you just address that head on?
Jeff Shafer 02:21
Yeah I love that question because immediately what goes in my head is, so every time you make money are you doing something bad? Well, we all know that’s not the case, and so I’ll just use my own example actually on how I got into impact investing. I started investing in affordable housing and mobile home communities and if I had the statements in front of me, I would show I could absolutely show you we have made real legitimate capital and returns equally though we’ve had some amazing impact on the lives of these residents.
So, impact investing is a broad terminology, just like investing so there’s private equity, private credit, real assets, and so to make a blanket statement and say everything makes money would be disingenuous. But are there investments out there a lot of them that make serious capital and do good? Absolutely.
Greg Mausz 03:12
OK we have a lot of financial advisors in the audience. Should they be bringing this up to clients if clients are bringing it up to them, and then kind of continuation of that who’s is actually investing in impact?
Jeff Shafer 03:27
Yeah, I’ll start with your first, or actually the second question. Who’s investing this way? So, this is not a new trend, this has been going on probably from the 70’s on. Institutional investors, foundations, endowments have been investing this way for a number of years. The exciting part is it’s now starting to come down into the broker dealer and RIA world. I would tell you as somebody who came from traditional alternative investing for 20 years as an executive switch to impact. We are talking to registered investment advisors family offices all around the United states who are starting to implement this. So, it is real it is happening and ultimately it’s about connecting with your clients in a deeper way, not only in the financial side but also on the non-financial stuff as well.
Greg Mausz 04:16
So where are we in this trend is this widely adopted is is we on the like the starting yard line here and should advisors use this as a way to differentiate themselves?
Jeff Shafer 04:28
Yeah, we clearly are on the early cusp of adoption for impact. ESG on the other hand typically is public related securities that is much bigger and is much further along, impact is going to and will continue to grow. I think what most people don’t realize is that I’m not a fan of this word but the “ecosystem” around impact investing has grown tremendously and so there are a lot of things happening that most people aren’t aware of. And so yeah, I absolutely will be talking to your investors and clients about this.
There’s many reasons um, 87% of millennials want to align their values with their investments, 84% of women say the same thing. That’s not to say men don’t care because actually it’s what thoroughly 65% do but, then you have this massive wealth transfer and so there is a real reason for advisors to be having these discussions.
Greg Mausz 05:26
Well thank you for dropping those numbers because those are meaningful, and thanks for walking us through the high level of impact investing I appreciate it, Jeff.
Jeff Shafer 05:33
Yeah, thank you.
Greg Mausz 05:34
And thank you all for watching. For more educational content like this please visit adisa.org, thank you.
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