In this blog post, Clara Miller and Toni Johnson from The F.B. Heron Foundation, a pioneer in impact investing, talk about the challenges they've faced in fully and deeply mission-aligning their investment portfolio. "On the surface," they write, "investing with one’s values may seem simple, but our experience at the F.B. Heron Foundation shows that even with the best of intentions and promising, emerging standards and tools, the current investment framework makes it challenging."
Three key challenges they identify are:
- Delegation of investment authority: Most institutions (and individuals) use fund managers because it is economically efficient to do so. These managers have specialized teams focused on maximizing financial returns regardless of social impact. Heron still has a portion of its assets invested passively via BlackRock, which has no customizable investment vehicle for an institution of our size. Thus, at the moment, we continue to be invested in companies that we would prefer not to be, including Foxconn and Walmart.
- Fund structure: Many institutional investors use investment vehicles that are time-bound and have liquidity constraints. For example, Heron remains invested in a private equity fund that was originally a social investment, but now under-performs both socially and financially by our measures. However, we are obligated to stay in this fund for the agreed-upon term. Some private equity funds also lack transparency around the companies they acquire, which can lead to unpleasant surprises.
- Lack of standardized data: Most companies do not report reliable, standardized data points that allow potential investors to assess their social performance in a meaningful way. And so currently, it is difficult to move large amounts of money to investments with confidence that their social performance has been accurately measured. It’s also hard to compare companies’ social performance across different industries. (One sector where we have found a lot of information on social performance is the financial services industry, due to the requirements of the Community Reinvestment Act.)