Re/Visiting IMPACT INVESTING + ESG >> Purpose-Driven Finance

Could be CRUNCH TIME with a clincher > to deliver 'above-market returns.'
What can be better than that?
This is one of those read-between-the-lines kind of things - perhaps a bit Far-Fetched for those outside the exclusive confines of financial insiders. . .
https://www.carlyle.com/global-insights

"The dual purpose of "impact investing" has always seemed to imply that positive social and environmental outcomes necessarily come at the expense of financial performance. In this paper, we document that it is precisely the societal goals of the impact investor – diversity and inclusion, environmental sustainability, responsible governance – that increasingly generate the above-market returns sought by the market as a whole. As traditional financial efficiencies have become more fully integrated and priced in to assets, environmental and social factors provide a lens to identify untapped value in all types of companies by driving sales, reducing costs and boosting productivity through improved governance, inclusion and diversity initiatives, workplace investments in human capital, and investments in energy sustainability.

The phrase “impact investing” was coined in 2007 to describe a new form of financial intermediation that combines social and environmental mission-orientation with traditional asset management.
1 From the outset, the dual purpose of the strategy seemed to suggest that positive social and environmental outcomes necessarily come at the expense of financial performance. Researchers focused on impact’s “cost” in terms of foregone returns,
2 often implying that traditional strategies must involve some degree of social or environmental degradation. As initially conceived, impact investing seemed predicated on a “damned if you do, damned if you don’t” mindset that treats genuine impact as irreconcilable with (risk-adjusted) return maximization.

PLEASE NOTE: impact investing traditionally refers to private investments made into companies or assets with the intention to generate social and environmental impact alongside a financial return. ESG integration strategies are applicable across both public and private markets, and typically refer to the incorporation of environmental, social, and governance factors into a traditional investment analysis across a wide range of companies. 

Most institutional investors focus on where ESG factors add material value through differentiated insights (however other types of investors use these tools to express market views or personal priorities).

_____As markets have evolved, this stark dichotomization between social and financial returns has become progressively harder to defend.
3 The same companies often receive financing from both traditional asset managers and dedicated impact funds. The same pools of capital often commingle funds from highly-motivated environmental, social and governance (ESG) investors with those of investors focused solely on earning the highest possible (risk-adjusted) return. 

More consequentially, as we describe in greater detail below, it is precisely the societal goals of the impact investor – diversity and inclusion, environmental sustainability, responsible governance – that increasingly generate the above-market returns sought by the market as a whole. As traditional financial efficiencies have become more fully integrated and priced in to assets, environmental and social factors provide a lens to identify untapped value in all types of companies by providing means to drive sales, reduce costs, enhance productivity, or expand valuation multiples.

The assumed trade-off between social benefits and financial returns may not just be outmoded; such thinking could actually impede improvements in investment performance. By presuming that social benefits detract from returns, traditional investors ignore the ways an impact orientation can add (market) value. And by assuming that genuine impact requires some degree of financial sacrifice,4 impact investors can fail to appreciate how socially-optimal strategies manifest themselves in company income statements and 

FEBRUARY 2020
from Impact Investing to Investing for ImpactJason M. Thomas
Managing Director and Head of Global Research at The Carlyle Group
By Jason M. Thomas and Megan Starr

In the past decade, what is now known as ‘impact investing’ has challenged the long-held view that social returns should be funded by philanthropy and financial returns should be funded by mainstream investors.

Feb.28 -- Jason Thomas, managing director and head of research at Carlyle Group, spoke to Bloomberg in Berlin on Feb. 27 about the private equity firm's latest report, "From Impact Investing to Investing for Impact." He also commented on the outlook for global markets in an interview on "Bloomberg Markets: European Open."