Part Two – Never Give Up Investing for Good
Publishing the Hoover article was not the only thing I did last week. I also had a series of meetings with European asset management and wealth advisory firms, including a few former colleagues. While it was wonderful to see them all, some of the news they had to share disturbed me deeply.
As you’ll recall, several years ago, public interest in ESG and sustainable investing was riding high. Many European outsourced investment mandates in particular included tangible sustainability and economic justice objectives, right alongside ambitious risk-return goals. In 2020 alone, ESG funds took in a stunning $8 billion a day. Many wanted to commit their capital to do well and do good. As backlash against underperforming and non-impactful ESG funds has grown, however, demand for positive, non-financial outcomes also seems to have fallen out of favor. The long tail of ESG failure has turned growing numbers of investors away from trying to do meaningful, non-financial good with their capital. Where there once was hope, a ruinous cancer has set in: cynicism.
This is not just morally tragic: as my colleagues and I at IEL have written, from a simple optimization standpoint, it can also be financially tragic. There are a wide range of impact investment strategies that improve Sharpe ratios, exceed investor risk-return objectives, make portfolios more resilient – and yes, create a better world.
One such strategy we recently verified at IEL is Wes Lyons’ Eagle Freedom Fund 1 (EF-1). Dedicated exclusively to ending human trafficking and slavery, EF-1 has returned +41% to its investors over its first five quarters, an annual IRR in excess of +26%. No global stock market (except Pakistan’s!) has gone up more over the same period.
How has fighting human trafficking been so profitable for EF-1 investors, you wonder? Among other things, Wes and his colleagues funded Hotel Shield, a security and detection platform which helps hospitality brands identify and end nefarious activities on their premises that would otherwise multiply their insurance costs. EF-1 also invested in Sharon Pursey’s remarkable SafeToNet operation, which protects children from sexting, cyberbullying and online grooming at the source. Intel and Samsung have recently partnered with SafeToNet to help ensure their products do not enable child exploitation anywhere in the world. Intel and Samsung are using SafeToNet to meet regulatory demands and dampen reputational risk.
Source: Eagle Venture Fund
Who would have thought doing so much good could simultaneously generate above-market returns? Well, at IEL, I’m proud to say, looking for and highlighting examples like this are pretty much all we think about.
EF-1 represents a compelling impact investment fund focused on social justice. There are, of course, many other impact areas that can be promoted. On the environmental side, for example, in honor of Climate Week in NYC, my colleagues and I highlighted a broad range of carbon-emitting reduction strategies that have generated annualized returns from to +20% (involving improved energy efficiency) to +33% (through smarter grids and better energy storage). These positive returns contrast with negative financial results in solar, wind and bio-fuels – proving why we at IEL obsess over verifying both financial and non-financial metrics. Impact funds have widely varying returns.
No cynic ever built a cathedral. While I have written my fair share of ESG critiques – including two books and more than a dozen articles - I have never been nor will I ever be cynical about the capacity of private capital to generate verified, double-bottom line results. Mindful investors can verifiably use their capital to include the excluded, serve the underserved, steward our precious lands, air and waters AND generate attractive risk-adjusted returns. The only thing that prevents many from trying now is cynicism.
Leading wealth and asset advisory firms can and should re-engage qualified, mindful investors on how they might achieve all of their financial objectives while simultaneously and verifiably benefitting people and planet. Doing well while doing good is increasingly prioritized by faith-based investors. I expect many will be inspired by their positive experiences. Of this much I am sure: accurate data and analytics combined with noble ambitions can overwhelm noble lies.
My friend and mentor, Fr. Theodore Hesburgh CSC – famed President of the University of Notre Dame – often said “If you come across a contradiction between science and religion, you are either dealing with an errant scientist or a flawed religious doctrine.” Things can be true and good. Things can be beautiful and profitable. You need to look for them, however: if you don’t, you won’t find them.
The pictures that accompany this article are of the newly reconstructed interior and spire of the Notre Dame de Paris. Inspiration, hard work and technical expertise rebuilt an historic awe-inspiring cathedral that once again lifts human spirits. Every artisan that carved stone, cut glass, gilt-painted and carved wood were inspired to do something bigger than themselves.
Verified, cutting edge impact investments can do so as well – lift human spirits while also generating tangible economic value.
