All Things Impact.

private capital & the public good

All Things Impact for November 4, 2016: ESG & bond portfolios, children of the superrich, feedback loops in philanthropy, and why so many men are incompetent leaders

Brian WalshComment

Hi friends,

Welcome to All Things Impact, a newsletter of interesting things I've seen from across the spectrum of impact: responsible investing (in the public markets),  impact investing (in the private markets), effective philanthropy, and a wildcard topic. For previous posts, to subscribe, and for more information, please visit All Things Impact.

Here are four links worth your time (plus items of note, job postings, and a calendar of upcoming events):

1. Responsible Investing: impact of ESG on bond portfolios
You know that responsible and sustainable investing has gained momentum when most of the major Wall Street firms have set up teams to create investable products for clients and research reports on industry trends. Barclays is the latest firm out with a new white paper, “Sustainable Investing and Bond Returns,” by the Barclays Quantitative Portfolio Strategy Research team. They set out to ask the question: “Does the incorporation of environmental, social and governance (ESG) criteria in the investment process improve the financial performance of a bond portfolio or hurt it?” (Spoiler: it improves.)

As the report states, “We are at a turning point where ESG investing is maturing and being formalised through ESG integration into decision-making processes, standardisation of ESG data, new benchmark indices, and broader pro-active engagement with issuers.”

Here are the key findings:

  • Barclays research shows that ESG need not be an “equity-only” phenomenon and can be applied to credit markets without being detrimental to bondholders’ returns.
  • The findings show that a positive ESG tilt resulted in a small but steady performance advantage.
  • No evidence of a negative performance impact was found.
  • ESG attributes did not significantly affect the price of corporate bonds. No evidence was found that the performance advantage was due to a change in relative valuation over the study period.
  • When applying separate tilts to E, S and G scores, the positive effect was strongest for a positive tilt towards the Governance factor, and weakest for Social scores.
  • Issuers with high Governance scores experienced lower incidence of downgrades by credit rating agencies.
  • Broadly similar results were observed using ratings from the two ESG providers considered in this report despite the significant differences between their methodologies.

2. Impact Investing: Children of the Superrich Want to Fix the World’s Problems

My friend (and fellow co-host, along with David Bank, of ImpactAlpha’s “Returns on Investment” podcast) Imogen Rose-Smith has a new piece with a provocative title in Institutional Investor about some of the members of The ImPact, “a pledge and a network for high-net-worth individuals and family offices committed to exploring the effects of their investments.” Imogen argues that this individual and family office money is not enough to address the scale of social and environmental problems, without also attracting larger institutional sources of money (which unlike individual asset owners, come with fiduciary obligations).

"The ImPact sees itself as offering a “safe space” for family offices to talk assets and altruism. While the group does publish its white papers and research, and many of its members are public evangelists of impact investing, much else about the group remains private. The ImPact — which wants to be the TED Talks of impact investing — does not disclose its membership’s collective assets, the number of people in its network, or the average deal size in its database.
Jessica Matthews, managing director of Cambridge Associates’ mission-related investing group, says the word is getting out to institutional asset owners. She sees rising interest from foundations in particular as well as some endowments, and the quantity of investable products has climbed significantly in recent years. “We have a lot more things to do due diligence on” than when the group started almost a decade ago, Matthews says. Yet the number of institutional-quality impact funds is still small, especially outside of the private markets. “One of the problems is that there needs to be a cross-pollination of strategy,” she notes.
Groups like The ImPact can help with that, but their own impact will be limited if they do no more than talk among themselves."

3. Effective Philanthropy: On a Scale of Zero to 10, Would You Recommend This Nonprofit?
In Nonprofit Chronicles, Marc Gunther covers the recent Feedback Summit 2016, a gathering of nonprofits and funders seeking to better listen to people philanthropy seeks to help. (Disclosure: Liquidnet is a donor to the Fund for Shared Insight, which has funded Feedback Labs, the group behind the Summit.)

“[I]magine, if you will, a nonprofit sector with its own Trip Advisor, a guide that would help donors, volunteers and workers better understand which nonprofits do well at serving their customers.
The sector is a very long way from creating such a guide, but it is taking small steps in that direction, as more nonprofits experiment with feedback loops — efforts to listen, learn and respond to their constituents, and thereby become more effective. This is welcome news: A movement to build feedback loops into nonprofits is gathering adherents, winning support from foundations and building a community of practice...
Feedback loops help address a fundamental disconnect in the nonprofit world: Nonprofits typically are funded by their donors and not by their clients so, unlike businesses, they don’t have financial incentives to be responsive to those they aim to serve. Feedback loops connect them more closely to clients...
While these are still early days for feedback loops, they have the potential to improve the performance of nonprofits, give voice to those who are being served and better inform institutional and individual donors.
Feedback loops, for example, could be used to evaluate workers in nonprofits or, for that matter, those in government who deliver services. (Imagine a Social Security office or motor vehicles bureau using feedback loops.) They could be used by community foundations to see how the scores of one social service agency compare with others. At the very least, charities could be asked by donors if they listen to the voices of beneficiaries, and what they are learning.
Feedback loops raise complicated questions. Should the surveys be anonymous? (Most are.) Should they be used to evaluate nonprofits, their programs, or their workers? (Most are not.) Could feedback loops be used by advocacy groups like or Amnesty International. (Maybe.) Should any of the data be public? (To the best of my knowledge, none is.) Publicizing the scores of nonprofits will inevitably create temptations to game the feedback system; think of the distortions created by oft-maligned US News college guide."

4. Wildcard topic: Why do so many incompetent men become leaders? 
In the Harvard Business Review a few years back, Tomas Chamorro-Premuzic ponders the reason why more men are in leadership roles than women, positing that this is the case due to “our inability to discern between confidence and competence.”
He goes on to write:

 “[B]ecause we (people in general) commonly misinterpret displays of confidence as a sign of competence, we are fooled into believing that men are better leaders than women. In other words, when it comes to leadership, the only advantage that men have over women (e.g., from Argentina to Norway and the USA to Japan) is the fact that manifestations of hubris — often masked as charisma or charm — are commonly mistaken for leadership potential, and that these occur much more frequently in men than in women….
The truth of the matter is that pretty much anywhere in the world men tend to think that they that are much smarter than women. Yet arrogance and overconfidence are inversely related to leadership talent — the ability to build and maintain high-performing teams, and to inspire followers to set aside their selfish agendas in order to work for the common interest of the group. Indeed, whether in sports, politics or business, the best leaders are usually humble — and whether through nature or nurture, humility is a much more common feature in women than men….
Most of the character traits that are truly advantageous for effective leadership are predominantly found in those who fail to impress others about their talent for management. This is especially true for women. There is now compelling scientific evidence for the notion that women are more likely to adopt more effective leadership strategies than do men. Most notably, in a comprehensive review of studies, Alice Eagly and colleagues showed that female managers are more likely to elicit respect and pride from their followers, communicate their vision effectively, empower and mentor subordinates, and approach problem-solving in a more flexible and creative way (all characteristics of “transformational leadership”), as well as fairly reward direct reports. In contrast, male managers are statistically less likely to bond or connect with their subordinates, and they are relatively more inept at rewarding them for their actual performance. Although these findings may reflect a sampling bias that requires women to be more qualified and competent than men in order to be chosen as leaders, there is no way of really knowing until this bias is eliminated.
In sum, there is no denying that women’s path to leadership positions is paved with many barriers including a very thick glass ceiling. But a much bigger problem is the lack of career obstacles for incompetent men, and the fact that we tend to equate leadership with the very psychological features that make the average man a more inept leader than the average woman. The result is a pathological system that rewards men for their incompetence while punishing women for their competence, to everybody’s detriment.”

5. Items of Note

6. Job Postings

7. Upcoming Events
Nov 9-11  Sustainable, Responsible, Impact Investing (Denver) Responsible Investing
Nov 16-18 Independent Sector (DC) Philanthropy
Dec 7-8  Global Impact Investing Network (Amsterdam) Impact Investing
April 7, 2017 Wharton Social Impact Conference (Philadelphia) Impact Investing

That’s it for this week. Help me spread the word about #AllThingsImpact to your friends and colleagues, who can sign up to receive this newsletter at All Things Impact. Please also send me any job postings, items of note, upcoming events, or compelling links you discover in your own journeys across the web (even things like like this dog excited to see a cat). 

Until next time, thanks for reading!

Brian Walsh
Head of Impact at LiquidnetFull Bio.