For years, I was an impact investing skeptic.
It seemed a little squishy (how do you measure impact, anyway?). And it meant I had to give up return in order to have an impact (since everything in life is a tradeoff, right?)
So how much return was I willing to give up, to have an impact that I really couldn’t measure? Mmmm, not so much.
And, if I’m going to be probably-too-honest, impact investing also wasn’t where the cool kids on Wall Street gravitated. Those were the hedge funds and the trading desks, with their huge block trades, thrown chairs, broken phones, high fees and big bonuses. That’s where the “best and the brightest” wanted to be. That was how we defined success.
Hedge funds underperform the market by about the amount of their fees.
(No, not all of them, and not all of them every year, and I’m sure your cousin Steve’s hedge fund did very well. But as an asset class, they underperform less sexy mutual funds, by about the amount of the higher fees.)
And active trading — of the “throw the phone” or the GameStop swarming variety — is also a loser, with very few (and by very few, I mean less than 1% of active traders) consistently outperforming the market over a five-year period.
So higher fees have meant higher compensation for Wall Street, but lower returns for the clients. The old “But where are the customers’ yachts?”
But it’s actually been even worse than that. Something else was wrong with that old definition of success.
Because just because you’re not thinking about impact investing, just because you don’t know what impact your current investments are having — that doesn’t mean they aren’t having an impact. Every dollar you invest has to go somewhere, which means it has an impact.
And that impact may be aligned with your values. Or it may not be.
And there was no way of measuring that, either. You’ve had no way of knowing, really, what your money was funding. Even though it’s YOUR money. Money you worked really hard to make.
I’ve learned a lot over the years (thank goodness) since I first stepped on those loud trading floors.
Like that financial return and positive impact investing do not have to be mutually exclusive, if in fact they ever were. Chief Investment Officer Sylvia Kwan talks about that in her whitepaper — it’s just not true.
And that, while “impact reporting” is still not perfect, the expansion of data sources to measure impact in our investments has come a long way.
So we’re building Ellevest with an eye toward driving an impact in as many ways as we can. And last week, we rolled out the first version of Ellevest’s impact reporting for our private wealth clients.
It’s the reporting that I — and the financial advisors on our private wealth team — want for our own investments. First, it tells you a little about the impact our team is having at Ellevest, since your dollars support us just as much as they do a stock you’re invested in. You’ll see that you are helping us build a diverse company (I would venture the most diverse financial company of any size), and you’re doing it alongside mission-aligned investors like Melinda Gates, Penny Pritzker, and a number of women-run venture capital firms.
The report gives you numbers around the concrete impact your money is having. If you are invested in the Ellevest Intentional Impact public equity portfolios, we’ll show you how much of your portfolio is divested to prioritize racial justice and women’s rights. We’ll also show the impact we together are having, in metric tons, by lowering carbon emissions across these portfolios.
In addition (and I love this), we tell you about the alternative investments you’re in. For example, some clients are invested in assets that produce clean energy to power homes and companies. These include solar sites designed with pollinator-friendly ground cover that creates a healthy microclimate for declining bees and monarch butterfly populations. Some clients are invested in funds that provide housing to underserved communities, and some clients are in funds that finance early-stage companies led by underrepresented founders — to name just a few.
If you’d like to see a sample that shows what goes into the Ellevest Impact Report, or have questions about impact investing with Ellevest Private Wealth, click here to contact the Private Wealth Management team.
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