Make money and make a difference

Winter 2017

“Make money and make a difference”, the tagline from autumn's Good Money Week, neatly captures the essence of adopting an ethical investment mindset. It is not about sacrificing financial performance for a greater good. It is very much about generating financial returns that are coupled with positive social and environmental outcomes.

We foresee an ever-increasing convergence of social, environmental and financial considerations across the financial services sector, in both investment decisions and broader business activities. One sign of that convergence is through the application of Environmental, Social, and Governance (ESG) considerations into investment decisions. As reported during Good Money Week, over a 10-year period, 21 out of the 39 ethical equity funds on the market beat the FTSE All Share, which demonstrates that such convergence need not be at the expense of financial returns.

We have identified three further examples of integration, each of which also presents opportunities for the financial services sector to enhance its business and social value.

1 Apply investment principles to your Corporate Responsibility (CR) activities.

Your charitable giving and community investment can create even better outcomes for society if they focus on activities that deliver the greatest social returns. Benchmarking results, quantifying value created, and pursuing and replicating outcomes that deliver the greatest returns are all part of the investment decision making process.

What we are starting to see, and would encourage, is the application of those habits to businesses’ CR activities. An example of this approach is our work with our corporate clients to measure Social Return on Investment.

2 Engage in impact investing to generate dual returns.

There are more opportunities than ever for businesses to engage in impact investing, for example through social impact bonds, to generate both social and financial returns. In 2013 we produced a research report with Legal and General titled Unlocking the power of creative capitalism through social investment which gives an insight into the key role the financial services sector can play in developing the social investment market.

For businesses looking for a financial as well as a social return, with the opportunity to re-use capital, there is CAF Venturesome, our social investment arm. CAF Venturesome work with clients to make social investments by lending their charitable funds to charities and social enterprises. Since 2002, we have made over 500 social investments, totalling over £40m, and worked with over 100 funders.

3 Integrate ESG and CR to maximise long term value.

Businesses that apply ESG considerations to their investment decisions and integrate CR into their business strategy demonstrate to stakeholders that they are maximising the long-term value they can create. That value might manifest itself through greater financial returns, increased customer engagement, enhanced brand reputation or more resilient products and services.

Those two activities, which employ different methods but are working towards the same goal, demonstrate that the benefits of CR and ESG need not be confined to a separate function within the business.

We believe that the convergence of social, environmental, and financial considerations should be encouraged and supported. As the principles, values, and ideas associated with those disciplines interact there will be innovations that create opportunities for businesses to maximise the long-term value they generate, for themselves, society, and the environment.

We’re challenging our clients and the wider financial services sector to reflect on their own practices and activities and consider what a greater integration of ESG and/or CR means for their business and the opportunities it might create. We’re uniquely placed to engage businesses in these discussions. We facilitate the charitable giving of 70% of the FTSE100, operate our own social investment practice, and have great relationships across the financial services sector.

We are keen to engage businesses in a discussion of these issues and welcome the opportunity to challenge you to maximise the positive social and environmental outcomes you can create. If you want to start those conversations with us, please get in touch.

We would love to hear your thoughts on this blog. For more information or an informal discussion on how we can help advise and support your company please get in touch.