Can retail clients be impact investors?

Head of impact equities explains strategy behind impact fund and why it differs from traditional ESG strategies

Can retail clients be impact investors?

Within the world of values based investing — which includes both ESG and socially responsible investing (SRI) — impact investing has largely been the remit of billionaires and foundations. Unlike ESG or SRI, which seek to avoid social harm in an investment portfolio, impact investing seeks to fund positive social changes. That sort of investing requires consensus on what constitutes positive change and relatively heavy involvement on the part of the impact investor, which is why it’s been largely left outside the reach of retail investors.

Martin Currie, a Franklin Templeton Company, is aiming to democratize impact investing. Late last year, Franklin Templeton Canada launched the Franklin Martin Currie Improving Society Fund, which explicitly aims to provide Canadian retail investors with an impact strategy. Lauran Halpin, head of impact equities at Martin Currie, explained exactly what this fund aims to achieve and how it seeks to deliver both positive impact and investor returns.

“The improving society fund is simply a global long-only equity portfolio that comes with a dual objective,” Halpin says. “The first objective is a traditional long-term returns goal…But then we have this separate objective, which in our case is focused on creating real societal change.”

Halpin explains that the core means by which the fund strives to meet its two objectives is through investment in companies innovating products and services that should create meaningful positive impacts in the world. That includes companies like Intuitive Surgical, which develops robotic surgical assistants to improve healthcare outcomes for patients, or Mercado Libre, which offers easier access to lending in much of Latin America.

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The fund has three “impact pillars,” which set what Halpin believes are relatively widely accepted positive goals. The first is improving wellbeing through access to healthcare and basic needs. The second is improving inclusion through education, financial equality, and access to resources. The third is supporting a just transition, companies aimed at supporting both the decarbonization of the global economy and a more painless transition for those affected by these economic shifts.

The impact pillars function along similar lines to goals of overall human development. Companies in the improving wellbeing pillar tend to deliver impacts in areas like food and agriculture, healthcare, sanitation, and other basic elements of life. Once those needs are better met and better starting positions have been achieved for individuals, we can look at improving their access to actualization. That is where the improving inclusion pillar fits in, with investments in companies that improve access to education, resources, and financing. The supporting a just transition pillar focuses more on the wider changes going on around us. In a world shifting away from fossil fuels, companies that are dedicated to reskilling and improving individual opportunities in a green economy offer that impact.

“There seems to be little to argue with that people want other people to be healthier, more economically actualized and safer from big economic shocks,” Halpin says.

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While these goals remain somewhat subjective, Halpin explains that the goal of the fund is to make them more objective by assigning KPIs to each company and assessing their progress towards those goals. Those KPIs could be as simple as the number of affordable housing units delivered each year. It doesn’t need to be convoluted, but each holding is assigned a specific area of impact that Halpin and her team will assess. They then work in partnership with the companies they invest in, advocating for adherence to those goals.

Operating in a world of values-based investing means managing aspects of portfolio holdings that might not meet the ethical standards of a values based investor. Halpin explains that in this fund, her team screens for potential issues or harms, weighing them against the positive social impacts of a company. Take for example, Emirates cooling, a Dubai-based company addressing issues of mass cooling that are crucial to how the world will manage climate change. Operating in the UAE they are held to labour standards that most North Americans would consider lax at best. Halpin and her team directly assess that company’s labour practices, scoring them against a wide array of other criteria. The end result is a somewhat objective and more holistic measurement of impact and harm that they and their investors can be comfortable with.

Halpin accepts that not every investor or advisor will want to include positive social impact in their investment portfolios. However, this fund exists for those investors who are driven by a dual objective of long-term growth and positive social impact.

“We're not trying to please everyone, what we're trying to do is to provide a strategy for the people who are interested in thinking about the legacy that their money can leave, not only in terms of their own returns, but in terms of what is going on outside in the world,” Halpin says. “The advisors that we spoke to in Canada spoke a lot about legacy about how a lot of their customer book is very interested in thinking about the ways that they will leave the world to their children. That's not just in the balance of their account, that's the society in which they find their children living.”