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ESG ESG Newsletter published on October 2, 2017

How Investors Prioritize Impact

In recent years, sustainable and impact investments have picked up steam, creating a highly complex ecosystem. This ecosystem includes a range of actors, from asset owners to intermediaries, investment managers, underlying investment targets, experts and field builders, among others. It’s a kaleidoscope of big ideas, innovation and idealism, coupled with some shrewd analysis and investment decision-making.

Over time, investable opportunities have often been framed as “returns first,” meaning they primarily yield market-rate returns with some impact; or, on the other end of the spectrum “impact first,” meaning they primarily target positive social and/or environmental impact with varying expectations on investment return. This spectrum has been critical in driving capital toward different types of investment strategies by offering much-needed structure and direction to investors of all stripes.

And yet, less has been said about investors themselves: who they are, how they might have become interested in sustainable and impact investing and what they seek to accomplish through their investments. In other words, what really makes them tick when it comes to sustainable and impact investing?

To be clear, some investor segments – most notably women and millennials – have garnered a fair bit of attention. These demographic groups have been particularly interested in sustainable and impact investing, and so have been analyzed in greater detail. However, a broader review of investor priorities is still relatively rare.

Through our work with clients, we have gotten to know a range of investors. Whether they are individuals, family offices, foundations or endowments, they seem to exhibit some common characteristics that help define them. This, in turn, informs the way they think about sustainable and impact investments, and how they interact with their advisors and with investment managers such as Breckinridge.

In particular, we think there are three key investor groups, based on their preference for impact.

“Thoughtful Traditionalists” tend to be conservative individuals or organizations that care deeply about capital preservation. They are keenly focused on the financial performance of their investments, opting for proven, solid investment strategies that they understand. But these investors also feel a sense of stewardship for the environment and community, and they are receptive to concerns about issues such as conservation because they want to leave a better world for future generations. To this end, they are interested in sustainability as an additional feature of their investments, provided that those investments perform well from a financial standpoint.

At Breckinridge, our mission is to provide the highest caliber of fixed income management, thereby facilitating a sustainable flow of capital from long-term investors to responsible corporate and municipal borrowers. As a fixed income manager, Breckinridge is focused on capital preservation, making us an option for “Thoughtful Traditionalists.” Our experience and perspective around ESG integration can provide investors an access to the sustainable investing space, allowing them to direct their assets towards long-term oriented high-grade investments, typically through our flagship investment strategies with ESG integration.

“Pragmatic Idealists” are often forward thinking and in search of innovative win-win solutions to the world’s most pressing problems. They believe it is possible to “do well by doing good,” and this is reflected in the way they conduct their lives or operate their organizations. Whether they are individuals, family offices or foundations, they are often actively engaged in the growing sustainability and impact space and well-informed about the latest innovations and big ideas that promise to move the space forward. Their goal is to create meaningful impact through their investments, ideally at market-rate returns, and they often have specific impact goals and objectives.

Over the years, these types of asset owners have continued to spark rich dialogue with us here at Breckinridge, pushing us to think creatively and to innovate. In particular, through our discussions with foundations that are at the forefront of impact investing we have been able to learn and expand our own thinking. We have become known as a thoughtful partner, open to taking a road less traveled in order to identify the win-win solutions that our clients seek. This has led to continuing advancement in our ESG frameworks, which incorporate material ESG factors that often drive impact with a keen eye for long-term credit implications.

“Cause Champions” are passionate about the issues that they view as particularly pressing. From climate change, to health care access, income inequality and clean water, these investors are fully committed to driving change in their chosen area through a range of vehicles. “Cause Champions” tend to become engaged with their selected area of focus through philanthropy, and are often intimately familiar with the issue through speaking with experts, practitioners and other key stakeholders. They view sustainable and impact investing as a chance to take their efforts to the next level and expand their reach. Impact is of the utmost importance to them.

Our work with “Cause Champions” tends to be some of the most tailored. Through a range of carefully developed customizations, including Gender Lens and Fossil Fuel Free, we are able to provide more-targeted solutions to these types of investors. In these cases, we aim to devise a solution that best captures our client’s specific combination of priorities within the context of high-grade fixed income, therefore helping advance the idea of impact at scale. Additionally, through our issuer engagement efforts we aim to address a range of important social and environmental issues, and “Cause Champions” tend to express keen interest in this process.

We are grateful to have had the privilege to work with a range of individual and institutional investors who believe in the importance of sustainability, and we relish the opportunity to learn from them in efforts to become ever-better at what we do. Regardless of their type, we view these investors as important drivers of positive change and we are honored to take part in their journey toward impact.

 

 

DISCLAIMER: The opinions and views expressed are those of Breckinridge Capital Advisors, Inc. They are current as of the date(s) indicated but are subject to change without notice. Any estimates, targets, and projections are based on Breckinridge research, analysis and assumptions. No assurances can be made that any such estimate, target or projection will be accurate; actual results may differ substantially.

Nothing contained herein should be construed or relied upon as financial, legal or tax advice. All investments involve risks, including the loss of principal. An investor should consult with their financial professional before making any investment decisions.

Some information has been taken directly from unaffiliated third party sources. Breckinridge believes such information is reliable, but does not guarantee its accuracy or completeness.

Any specific securities mentioned are for illustrative and example only. They do not necessarily represent actual investments in any client portfolio.