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Impact Investing:
Making a Measurable Difference

The demand for ESG (environmental, social & governance) investing is only growing. Understanding the different styles within this expanding landscape is key to ensuring your investments align with your values. For those who feel passionately about a cause such as community development, carbon emissions or diversity, while also seeking competitive returns, impact investing may be a good fit. Boston Common Asset Management, an active, global equity ESG investment manager and a leader in impactful shareowner engagement, walks the talk, or seeks to carry out their mission, when it comes to impact investing.
 

The Opportunities and Challenges

Leaf background, Intro to Responsible Investing

Demand for ESG Investing is Surging

Since the 1990s, the movement among investors to “vote with their wallets” in support of companies that are making a positive impact has taken off. Today, with more than $35 trillion in assets worldwide, fund managers are broadly using ESG criteria to identify both risks and opportunities.

Global Push: Sustainable investing assets have grown more than 50% to $35.3 trillion since 2016

Source: Global Sustainable Investment Review 2020.

The Question of Performance

In spite of growing demand, many advisors have been hesitant to talk to clients about ESG investing. One reason for this is the perception that doing good comes at a cost of earning competitive returns. But rather than detracting from performance, an ESG approach can add to returns. A recent survey shows that 68% of advisors say clients who incorporated ESG in their portfolios in 2019 typically outperformed those without ESG investments — compared with just 28% and 18% in 2018 and 2017, respectively.1 This change may be occurring because companies with management teams pursuing outperformance in ESG practices are positioned to maintain advantages over companies that are not fully considering and managing these factors.

Past performance is no guarantee of future results.
1. “Performance tops investors’ motives for responsible investing.” Nuveen Fifth Annual Responsible Investing Survey. 2019. 

A Performance Case-in-Point: The 2020 Recession


The COVID-inspired recession of 2020 turned out to be the shortest downturn in US history.So how did ESG funds fare under that kind of pressure? This chart shows that companies identified as leaders in environmental, social & governance standards declined significantly less than companies identified as “ESG laggards” during the downturn. 

1. Source: CNBC, "It’s official: The Covid recession lasted just two months, the shortest in U.S. history."

companies with higher esg ratings fell less in covid-19 sell-off
Return by MSCI ESG Rating* — Market-Cap Weighted Average Jan-Mar 2020 (%)

MSCI's ESG Rating is designed to measure a company’s resilience to long-term, industry material environmental, social & governance (ESG) risks. MSCI uses a rules-based methodology to identify industry leaders and laggards according to their exposure to ESG risks and how well they manage those risks relative to peers. MSCI's ESG Ratings range from leader (AAA, AA), to average (A, BBB, BB), to laggard (B, CCC). We also rate equity and fixed income securities, loans, mutual funds, ETFs and, countries.  For more information about MSCI's ESG ratings click here.

Past performance and current analysis do not guarantee future results. 
As of March 31, 2020.
Source: Bloomberg, MSCI, S&P and AllianceBernstein (AB).
* Based on total returns for the index and for each category shown in USD. ESG leaders are all companies in the index with AAA and AA ESG ratings (472 companies in MSCI ACWI and 84 companies in S&P 500). ESG laggards are all companies in the index with B or CCC ESG ratings (378 companies in MSCI ACWI and 47 companies in S&P 500). 



Defining the Categories

One of the movement’s biggest challenges has been determining which investments qualify as "responsible" and which do not. "Greenwashing" — misrepresenting the sustainability characteristics of the investment product — has been rampant. Even so, several distinct categories have emerged. At one end of the spectrum are products that simply include ESG data as part of their security selection process. At the other end of the spectrum are impact products investing in environmental and social solutions providers, further amplifying this approach by directly engaging with corporations to instigate change.

Defining the categories of investing: traditional, ESG, SRI and Impact


The Guarantee of Real Change Remains Elusive

Demand for ESG investing has outpaced the industry’s ability to provide options that truly make a difference. Of today’s $35 trillion in sustainable assets, $25 trillion is categorized as “ESG Integrated.” 1 Funds in this category weigh ESG parameters alongside traditional metrics when picking investments. Managers can choose to act on ESG information or not, calling into question the category’s ability to exert any kind of lasting influence.

1. Source: Global Sustainable Investment Alliance. Global Sustainable Investment Review 2020.

Sustainable Investing Assets ($ Billions) by Strategy and Region (2020)

Source: Global Sustainable Investment Alliance. Global Sustainable Investment Review 2020.

Asset values are expressed in billions of US dollars. European sustainable investing strategy data is based on extrapolation from historic data from the 2018 GSIR report and applying the same proportion to 2020 sustainable investing data across the different sustainable investing strategies. US SIF data extrapolates from numbers provided by a subset of overall respondents in its 2020 Trends report. US and Australasia did not report on the category of norms-based screening and Australasia on the category positive/best-in-class screening.

Impact Investing: A Path to True Results

Solar panel image: intro to impact investing

Making an Impact

Over the past decade, opportunity within the impact investing market has only grown, with 69% of impact investors viewing the landscape as "growing steadily". Only 9% described the market as "in its infancy" and .3% saw it as "saturated." 1

The Potential Benefits of Impact Investing

For clients who are committed to making their portfolio a force for good, impact investing will likely be their best option. Alongside the goal of achieving competitive returns, impact investments seek to effect change within specific areas such as carbon emissions, community development, and diversity.

Many advisors are familiar with the concept of values-based investing — i.e., linking a client’s goals and vision for the future to their financial objectives — as a way to deepen the client/advisor relationship. For clients who feel passionately about a cause and are interested in contributing to current and future solutions to the world's most complex challenges, impact investing may well be a next logical step in that process.

While advisors report that performance is important to investors, there has been a noticeable jump in advisors’ perceptions that clients are committed to social and environmental causes in their portfolio choices, rising from 44% in 2018 to 74% in 2019 2.  According to the GIIN 2020 Annual Impact Investor Survey, an overwhelming majority of impact investors reported meeting or exceeding both their impact expectations and their financial expectations (99% and 88%, respectively).
1

 

Past performance is no guarantee of future results.
1. Source: GIIN, 2020 Annual Impact Investor Survey.

2. “Performance tops investors’ motives for responsible investing.” Nuveen Fifth Annual Responsible Investing Survey. 2019. 

Why Impact Investing?

core characteristic: intentionality

Impact investments intentionally seek to contribute to social and environmental solutions. This differentiates them from other strategies such as ESG investing, responsible investing, and screening strategies.

core characteristic: financial returns

Impact investments seek a financial return on capital that can range from below market rate to risk-adjusted market rate. This distinguishes them from philanthropic contributions.

core characteristic: range of asset classes

Impact investments can be made across asset classes.

core characteristic: impact measurement

A hallmark of integrated ESG and impact investing is the commitment of the investor to measure and report the social and environmental performance of underlying investments.

Source: GIIN Core Characteristics of Impact Investing.

A Manager Who Walks the Talk

coral image: intro to Boston Common's approach

Boston Common's Approach

Boston Common Asset Management (BCAM) is a diverse, women-led, sustainable investor and innovator dedicated to the pursuit of financial return and social change. An active, global equity ESG investment manager and a leader in impactful shareowner engagement since its founding in 2003, BCAM is majority women- and employee-owned.

Learn more about BCAM's philosophy & approach

Creating ESG Engagement Impact Via Four Main Activity Streams

image: sustained dialogue

Sustained Dialogue

Boston Common's ongoing dialogues prioritize overarching sustainability policies, alignment with international norms, response and remedy to controversies, setting ambitious and long-term sustainability goals and targets, and robust and business-relevant disclosure on implementation.

image: public policy

Public Policy

Throughout its history, Boston Common has actively engaged in order to shape public policy around the world. They believe investors have a duty not just to engage with investees, but to actively engage in policy conversations to drive sustainable corporate growth holistically.

image: shareholder resolutions

Shareholder Resolutions

Shareholder resolutions are one of BCAM's key tools for achieving impact in their public equity investments. They routinely support relevant ESG shareholder proposals and file or co-file shareholder proposals when a company dialogue has stalled or when a company is not willing to engage. 

image: thought leadership

Thought Leadership

With more than 17 years of experience in creating positive impact, BCAM continues to go above and beyond to define best practices for the global responsible investment community.

LEARN MORE ABOUT BCAM'S THOUGHT LEADERSHIP

Explore further examples of BCAM's historical leadership in the impact investing field include creating new metrics, indices, and frameworks that can help investors measure progress on issues from lobbying to labor standards

A Commitment to Quality

image: BCAM's commitment to impact and what they've done in 2020



image: certified B corporation image: B Corp designation for best for the world, 2021

B Lab’s Best For The World™ program recognizes the Certified B Corporations  globally that have achieved the highest verified scores in the five impact areas evaluated on the B Impact Assessment — community, customers, environment, governance, and workers.
See Boston Common Asset Management's ranking here >

Ways to Invest

For clients interested in impact investing, AMG offers multiple products that provide an opportunity to invest globally in companies that produce products and services aimed at helping solve some of the world’s most pressing problems. As part of its approach, management engages proactively and boldly with companies to drive positive change. 

Learn more about the products AMG offers, below.

Mutual Funds

Separately Managed Accounts


Impact Insights

Global Impact Report

download BCAM's global impact strategy report


Take a deeper dive into specific metrics for the Global Impact strategy including benchmark comparisons & stock picks.

download now

Annual Impact Report

download BCAM's annual impact report


Boston Common's Fifth Annual Impact Report highlights the broad scope of their leadership, engagements, and projects in a year of unique challenges.

Download now

Aligning Active Ownership Strategies in Impact Investing

download BCAM's global impact strategy report


An authentic, intentional, and holistic approach relies on aligning active ownership strategies with stated investment goals, and ESG-led research process, and impact-oriented themes and targets.

read blog

Talk to an AMG Representative

Have a Question?

Reach out to our investment team with your ESG/impact investing questions.

Advisor Line: 800.368.4410
Email: clientservice@amg.com

 

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Any performance data shown represents past performance. Past performance is not a guarantee of future results.  Current performance may be lower or higher than the performance data quoted. 

There is no guarantee that these investment strategies will work under all market conditions, and each investor should evaluate their ability to invest for a long term, especially during periods of downturns in the market. All investments involve risk, including the risk of losing principal.

Any sectors, industries, or securities discussed should not be perceived as investment recommendations. The views expressed represent the opinions of AMG Funds LLC and are not intended as a forecast of future events, a guarantee of future results or as investment advice, and are subject to change based on market, economic or other conditions. All data referenced is from sources deemed to be reliable but cannot be guaranteed as to accuracy or completeness.  

Applying ESG investment criteria to investments may result in the selection or exclusion of securities of certain issuers for reasons other than performance, and may underperform investments that do not utilize an ESG investment strategy. The application of an ESG strategy may affect an investment's exposure to certain companies, sectors, regions, countries or types of investments, which could negatively impact performance depending on whether such investments are in or out of favor. Applying ESG criteria to investment decisions is qualitative and subjective by nature, and there is no guarantee that the criteria utilized or any judgment exercised by an investment manager will reflect the beliefs or values of any particular investor.

The MSCI All Country World Index (ACWI) is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed and emerging markets. Please go to msci.com for most current list of countries represented by the index.

The S&P 500® Index is a capitalization-weighted index of 500 stocks. The S&P 500 Index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

The Morningstar® Sustainability RatingTM is intended to measure how well the issuing companies of the securities within a fund’s portfolio holdings are managing their financially material environmental, social and governance, or ESG, risks relative to the fund’s Morningstar Global Category peers.

Historical Sustainability Score as of 9/30/2021. Sustainability Rating as of 9/30/2021. Sustainalytics provides company-level analysis used in the calculation of Morningstar’s Historical Sustainability Score.

The Morningstar® Low Carbon DesignationTM is intended to allow investors to easily identify low-carbon funds across the global universe. The designation is an indicator that the companies held in a portfolio are in general alignment with the transition to a low-carbon economy. 

Carbon Metrics as of 9/30/2021. Based on 91% of AUM. Data is based on long positions only.

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Past performance is no guarantee of future results.

Investors should carefully consider the Fund's investment objectives, risks, charges and expenses before investing. For this and other information, please call 800.835.3879 or visit amgfunds.com for a free Prospectus. Read it carefully before investing or sending money.

AMG Funds LLC is a subsidiary and U.S distribution arm of Affiliated Managers Group, Inc. (NYSE: AMG). AMG Funds LLC are distributed by AMG Distributors, Inc., a member of FINRA/SIPC.  Boston Common Asset Management, LLC is the advisor to The Boston Common ESG Impact International Fund, which is which is distributed by Quasar Distributors, LLC.

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