Greg Wilensky: Impact investing means we are striving to generate positive, measurable, social and environmental impacts along with a financial return.
Nick Childs: Impact investing is direct investing in positive environmental and social themes. More specifically, these investments need to be made with engagement while being intentional, measurable and transparent.
Wilensky: Impact investing’s biggest success so far have occurred in allocating capital towards companies and projects supporting environmental sustainability: helping society to reduce energy consumption or drive the transition to more sustainable sources of energy.
Childs: Where I think impact investing can create the most unique influence is in societal themes. Particularly, promoting ways in which we can even the socio-economic playing field with our debt markets.
Wilensky: I’ve been managing core bond portfolios for over 25 years and I think it’s fantastic that we can combine the traditional desires of investors when investing in core bonds. That is, being able to generate returns but also provide a ballast, or an offset, to the volatility of the riskier or equity portions of their portfolio, with the ability for us to drive positive changes on both society and the environment.
How does engagement affect an impact investment's success?
Childs: I think engagement is a prerequisite of an active investment philosophy, but with impact investing it takes a more heightened role. To affect change at an issuer level or even regulator level, we need to both partner and pressure these entities on things like their sustainability goals as well as transparency.
Wilensky: We believe that engagement with companies, loan originators, regulators and other stakeholders has always been critical to our success as an active manager. Engagement is an even more important component to driving success in impact investment, along both the “impact” and the “financial returns” dimension.
How can active managers help develop impact investing?
Wilensky: The rapid increase in end investors’ desire to align their values and investment goals is a great [step] for society. Increased capital looking to positively impact society and the environment is just a critical first step though. Having investment managers who will be actively engaging with companies, issuers and regulators when allocating, and importantly, monitoring this capital are equally important in driving the changes that all humanity is looking for.
Childs: Ideally, engagement creates a virtuous circle in which influence leads to improved sustainability, lowering cost of capital, enhancing returns and encouraging competition to do the same. Ultimately, we think it is in everybody’s best interest to be engaged with each other, working together to solve our problems.
How can focusing on sustainability help bond portfolios?
Wilensky: Focusing on sustainable business models and growth has always been important for investors: it helps drive returns, and even more importantly, manages downside risk, which is crucially important for fixed income managers like ourselves.
Childs: Today’s investment environment requires us to be at the forefront of change and disruption because the transition to sustainability is increasingly one of the main drivers of relative success and failure. I also think increased engagement is a mechanism which can improve portfolio risk metrics while increasing diversification with newly created opportunities in the marketplace.
Why impact investment inspires us.
Wilensky: While consideration of ESG factors and sustainability has been a growing part of investing during my 25-year career, I’m really excited by the chance to more directly focus on driving the positive changes we desperately need to sustain and improve the world and society that I will be leaving to my children and their children.
Childs: What encourages me the most is that there is so much capital out there in the bond space, and I think we can generate competitive returns with traditional bond funds while placing client capital toward overall good. Increasing our engagement and changing the way the world thinks about investing is what inspires me.
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