Measuring the Intensity of Your Values: Impact Investing

Impact investing is growing fast. Consider:

  • In the past five years Bloomberg’s ESG (environmental, social and corporate governance) group has grown from nearly zero employees to over 60 devoted solely to impact ESG investments.

 

  • Morgan Stanely’s Institute for Sustainable Investing had nine people at their first meeting 2.5 years ago and last month’s had over 100 in attendance.

 

  • Booth’s Social Enterprise Initiative (SEI) and the Polsky Center for Entrepreneurship and Innovation have brought in Brian Axelrad, ’09 and CIO at Beyond Capital Fund, to teach a non-credit, 7 session, seminar focusing on opportunities in the impact investing space.

 

  • First-year student, Elsa Ng, created the Booth Impact Investing Enthusiasts Facebook group and received over 50 requests to join the group.

 

How does one measure the success of an “impact” investment?

While impact investing is a term that is currently developing and thus nebulous, generally it refers to allocating capital for investments based on the investor’s social values and promise of return in social good in addition to financial profit.

The issue is, it’s difficult to define and measure "social good,” as Liz Michaels, ’06, Chief of Staff at Aperio Group put it, “that is the big challenge – particularly in an arena where values are so personal – more like (immeasurable) utils that you studied in micro than (measurable) alphas, betas and standard deviations. In my work, we use a variety of social scores that allow investors to consider the trade-offs between the incremental risk and the intensity of their values – a social efficient frontier.”

Brian Axelrad explains, “There have been a number of efforts around metrics related to social impact and unlike financial metrics where you have GAAP or IFRS that can be broadly applied across businesses and industries, not all metrics will be applicable to all social enterprises. Certainly GIIRS (Global Impact Investing Ratings System) and IRIS (Impact Reporting and Investment Standards) are good for a larger assortment of metric choices to apply to businesses and funds, respectively. But it's up to specific investors and businesses to consider them carefully and understand which apply to their particular context. But if there is one success metric to rule them all, I don't see it.”

 

Why would a Booth student want to enter the space?

Brian thinks the industry is ripe for aspiring impact investors and more importantly, joining now would help shape the industry long term.

“Just the same way Booth alums and Booth philosophies have shaped the finance world in general, I see current Booth students having the same role to play in impact investing over the next 5-10 years and beyond.”

 

What if a Booth student wants to get into the space?

Liz Michaels explains many job possibilities:

  • Data side (think Bloomberg, MSCI, etc.)

  • Security/quantitative analysis (see some of the work that Deutsche Bank and Northern have recently released)

  • Corporate social responsibility positions (see work going on at McDonald’s and Coca Cola amongst others)

  • Shareholder engagement (see work being done by Blackrock)

  • Investment management (see work going on at Morgan Stanley and Merrill Lynch not to mention many of the independent RIAs)

She also emphasizes, “as far as experience ahead of time – the business and investment skills you are learning at Booth will prove the foundation for any position. In addition, it is important to be current on the issues”

Christina Hachikian, Director of SEI, agrees. “Here a student can get a great finance foundation, learn from the best on entrepreneurial finance/venture capital, and build a foundation in social sector issues.”

Booth students are perfectly poised to make their name in this industry, now it’s time to pick your passion.

 

Ways to learn more

  • Booth Impact Investing Enthusiasts Facebook group

  • Morgan Stanley Sustainable Investing Challenge Info Session: 11/3, 11:45 a.m. - 1:15 p.m. in Harper 223

  • Meet with Polsky’s Entrepreneurs in Residence: Email Hannah.Williams@ChicagoBooth.edu

  • Stop by SEI find out about impact investing opportunities and ways to maximize the Booth network: SEI - Harper 216

Lauren Anderson comes from the social impact sector and would love to see Booth talent, either on a volunteer basis or through full time work, take this industry to the next level.