Redefining Impact Investing with the Wisdom of the Crowd
The current explosion of interest in sustainable, mission-related, and socially responsible investing is arguably the strongest phase of expansion the space has seen in its 40-year history. What’s driving it is not better tools to measure impact, or more sophisticated products through which to invest – though these things are undoubtedly happening. The difference now is the breadth and pace with which social issues have thrust themselves into the national narrative, and the ramifications they have in the world of business and finance.
No longer is the notion that private capital can be used as a lever of positive social change confined to breakout sessions at Davos or the conference halls of the social investment industry. It is now a business imperative, being driven from the ground up, and infiltrating discussions in every board room and every investment committee across the country. To quote BlackRock CEO Larry Fink, “Society is demanding that companies, both public and private, serve a social purpose.” At the same time, the long-held view that impact investing necessitates some form of financial sacrifice is being exposed as a myth. Investors not willing or able to process these forces will shortly be in the minority, and risk losing touch.
All of that said, the path forward is not clear. There is no universal definition for what impact investing actually means, or how to measure it. Terminology is confusing. There are no generally accepted rules, or metrics of performance (though the Sustainable Accounting Standards Board is working hard to create them). Many impact funds underperform, both financially and in term of producing lasting social outcomes, and are cited in condemnation of the entire movement.
In such a complex operating environment, it can be difficult to act. At JUST Capital, we are trying to cut through the confusion by relying on the wisdom of the crowd. We believe that identifying and channeling the sentiments, priorities, and concerns of the American public is the best way to create a more just marketplace. To date, we have surveyed over 72,000 people from all around the country to identify the top issues when it comes to just business behavior. The results represent a clear, crowdsourced, and commonsense blueprint for the kind of marketplace people in the U.S. actually want.
The JULCD, JUST Capital’s diversified live index of companies adhering to these simple performance principles, has outperformed its benchmark by some 400 basis points over the 18 months since inception. These companies create U.S. jobs at a 20 percent higher rate, employ twice as many workers in the U.S., produce 45 percent lower greenhouse gas emissions per dollar of revenue, paid 71 percent less in fines for consumer sales-terms violations, gave 2.3x more to charity, paid 94 percent less in Equal Employment Opportunity Commission Fines, and generated a 7 percent higher Return on Equity (ROE).
On June 13, Goldman Sachs Asset Management launched the JUST U.S. Large Cap Equity ETF (Ticker: JUST), which was designed to track the JULCD. The response thus far from the investment community has been energizing – we were advised by GSAM that the JUST ETF ended first day as one of the most successful ESG ETF launches to date.
JUST Capital will continue to track the performance of just companies, in an effort to shed light on the impacts – both financial and societal – of aligning business behaviors with the priorities of the American public. Investing for return and social impact is a theme no investment professional should ignore.