How to Talk About Investing with Impact with Your Investment Committee

Tuesday, May 31, 2016
Find More By

By John Rogers, Financial Advisor and Investing with Impact Champions Council Member with the Global Wealth Management Division of Morgan Stanley

Impact investing is a concept that many foundation staff members hear about at a conference or read about in the mainstream media, but struggle to articulate to their board and investment committee. Morgan Stanley defines Investing with Impact as an investment approach that aims to generate risk-adjusted financial returns while supporting positive environmental and/or social impact. Many foundations are considering this emerging investment style to invest within their local communities, to align their endowment assets with their mission and to “unlock” a portion of the assets invested in their foundation’s corpus.

The first step to adopting the impact investment style is to initiate an investment committee discussion. Many investment committee members and consultants avoid impact investing, because they have been trained to be risk averse and only consider the financial implications of their portfolio. But committees are realizing that all investments have impact- some positive and some negative.

Impact investors do not always use the same terminology and this lexicon can be confusing. Between PRI, MRI, MDI and ESG the impact space has more acronyms than the IRS. When introducing the concept of impact investing to an investment committee, do not overcomplicate this investment style. Develop a common framework to categorize impact investments and use this framework to integrate impact investments into your investment policy statement.

Within the Morgan Stanley Investing with Impact framework, we include Values Alignment; Environmental, Social, and Governance (ESG) Integration; Sector Exposure; and Impact Investing approaches. This continuum helps our clients identify the type of impact that their investments target. Use of these strategies should be identified in an investment policy statement.

Values Alignment: Investments are filtered by interests and values and avoid exposure to potentially objectionable companies and industries. This process does not actively seek environmental and social impact, but it is utilized by organizations that must exclude certain investments that may conflict with their ideology. Religious institutions will often divest their portfolios from industries whose products and services don’t support their religious doctrine.

When identifying alignment of values in an impact investing policy statement, fiduciaries should identify whether they will perform a blanket screen on certain sectors (such as alcohol, tobacco and gambling companies) or choose to invest in “best actors” within a certain sector.

ESG Integration: This term refers to investment practices that actively identify Environmental, Social or Governance or sustainability factors when building portfolios. This investment style may have a mission-connected goal for a charity that promotes environmental stewardship, diversity and inclusion, or gender equality. However, many organizations are using ESG investment strategies purely for financial risk management. ESG investments can potentially identify nonfinancial attributes that strengthen a company, such as resource efficiency; workplace diversity; and strong corporate governance.

When identifying alignment of values in an impact investing policy statement, fiduciaries should consider defining ESG investing and identifying why they believe that these factors should be considered. Integration could be due to mission, financial risk management or a combination of the two.

Sector Exposure: With this approach investments focus on themes and sectors targeting specific environmental or social change. This exposure is niche to a particular industry or sector and may, for example, include investments in water or clean energy technology.

Fiduciaries who would like to target specific sectors should identify why these sectors connect to the mission of the foundation. They should develop a process to include these investments in their asset allocation, since sector investments are often thematic and require patient capital.

Impact Investing: This investment style is the most direct effort to effect positive social or environmental change. The investment strategies often provide capital directly to private enterprises or a specific geography. The terms “impact investments” and “mission investments” are often used interchangeably.

Fiduciaries who would like to integrate impact investments may consider developing a separate impact investment policy statement. This statement would identify a process for including impact investments in the investment portfolio. It should identify why it is prudent to connect certain social and environmental issues to the investment decision making process. It could also commit to monitoring social impact of the investment. Program Related Investment (PRI) opportunities are often evaluated within this category.

Impact investing does not have to be a daunting topic for investment committees. Deliberate leadership and a plan to educate your committee can lead to better outcomes. An investment policy statement review is the perfect time to evaluate the role of endowment and integrate impact investing language into your policy.


John Rogers is a Financial Advisor and Investing with Impact Champions Council Member with the Global Wealth Management Division of Morgan Stanley in Farmington Hills, Michigan. The information contained in this article is not a solicitation to purchase or sell investments. Any information presented is general in nature and not intended to provide individually tailored investment advice. The strategies and/or investments referenced may not be suitable for all investors as the appropriateness of a particular investment or strategy will depend on an investor's individual circumstances and objectives. Investing involves risks and there is always the potential of losing money when you invest. The views expressed herein are those of the author and may not necessarily reflect the views of Morgan Stanley Smith Barney LLC, Member SIPC, or its affiliates. 

Find More By
IPA News
Announcing the John M. Mutz Philanthropic Leadership Institute
June 25, 2020
Member News
Lilly Endowment Awards $10.65 Million in Grants to Indiana Community Foundations through GIFT Initiative
September 24, 2020
Member News
Lilly Endowment Grants Nearly $62 million to Colleges and Universities Across Indiana
September 24, 2020
General News
Lt. Gov. Crouch, FSSA announce 24 Golden Hoosier Award recipients
September 23, 2020