BEST OF BOTH WORLDS
Investors are finding that financial performance and ESG ‘impact’ can be complementary goals

Understanding the landscape of environmental, social and governance investing is critical to choosing the right investment strategy, particularly when it comes to the impact of that investment. As ESG investing continues to evolve and institutional investors have a growing number of strategies to pursue, they may find it challenging to navigate the wider array of options and to apply the appropriate nomenclature to the different approaches.

“It’s an important issue, not because one should particularly care about labels, but because investors need to know what they are allocating their capital towards and, therefore, what they should expect from their investment strategies as a result of that choice,” said Tim Crockford, senior fund manager and head of equity impact solutions at Regnan, the impact and sustainable investing brand at J.O. Hambro Capital Management.

In the impact space, investors should expect to hear the terms “intentionality,” meaning a stated intention to demonstrate positive and measurable impact, and “additionality,” or the added positive impact that otherwise might not be present, Crockford said. He pointed out that defining and executing on these ideas can vary widely from market to market, and manager to manager.

“For us, impact investing means investing only in companies that are trying to solve specific challenges, either environmental or social,” Crockford said. While all impact investing will consider ESG investing practices, that isn’t necessarily true the other way around, he explained. For example, an ESG investor might choose one tech company over another based on its performance across a wide range of ESG metrics, but that investor may not explicitly seek out a commitment to positive impact.

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