By JULIE MINDA
According to Pope Francis, financiers have the potential to use their resources to improve the lives of poor and vulnerable people, and impact investing is one way that investors can "have positive social repercussions on local communities."
In his speech to participants of a June 2014 conference at the Vatican on impact investing, Pope Francis said, "We are truly in need of" this type of investing to promote social good.
Erickson
Ascension agrees and has been using impact investing — or the injection of funds into initiatives benefitting the poor and vulnerable — as a formal strategy since 2015 to help people in need while also seeking a return on its investment.
David Erickson is the chief investment officer of Ascension Investment Management, a wholly owned subsidiary of St. Louis-based Ascension that manages about $25.6 billion in assets for the organization and its affiliates and about $4.1 billion for a roster of other organizations. He said, "We wanted to take socially responsible investing beyond simply screening out certain companies and find ways to proactively focus on the areas where we believe investing can make a real, measurable impact."
Ascension Investment Management is allocating about $50 million to social and environmental impact investments on behalf of Ascension and several other Catholic institutional investors, according to Erickson. The amount is about 0.2 percent of its assets under management, but it represents a forward shift in thinking.
Erickson said impact investing "represents an evolution of our socially responsible investing philosophy where we don't just avoid certain investments that might violate our socially responsible investing guidelines, but we actively seek to further a social responsibility mission by investing in a way that we believe will generate a beneficial social or environmental impact."
The impact investing approach Ascension Investment Management uses "echoes Ascension's mission, which calls us to serve all persons, with special attention to those who are poor and vulnerable, as advocates for a compassionate and just society," said Erickson.
Strict guidelines
Before hiring Erickson as chief investment officer in 2009, Ascension relied exclusively on external investment consultants charged with adhering to socially responsible investment guidelines that Ascension had developed. Beginning in 2009, Erickson brought the vast majority of investment decision-making in-house, eventually putting together a team of 27. In 2012, Ascension Investment Management became a federally registered investment advisor and has since built a portfolio of investment strategies and a roster of institutional clients, the majority of them Catholic organizations, according to Erickson. Ascension Investment Management staff select one or more third-party investment advisors to manage the investments and execute the investment strategies.
One of Ascension Investment Management's impact investments is in a company that is building modest but viable housing in Latin America. Here, children gather outside one such housing complex in Callao, the chief seaport of Peru.
Ascension Investment Management only invests with outside fund managers and funds that agree to adhere to its guidelines for socially responsible investing, said Erickson. He said that he and his team periodically work with an Ascension ethicist to review and tweak Ascension's guidelines for socially responsible investing.
In most cases, the external managers and funds selected by Ascension Investment Management handle the investments "as a separately managed account, a separate share class in a commingled fund, or by allowing us to opt-out of certain fund investments in private strategies," according to information from Ascension Investment Management.
Erickson said Ascension Investment Management provides external managers with a copy of its socially responsible investment guidelines and with a list of securities that are restricted from being held in any account managed by Ascension Investment Management. The list includes more than 800 public companies worldwide. This generally includes investments in companies with policies or practices that violate human rights, that are in conflict with Catholic teachings, that are discriminatory or that exploit workers.
Erickson said Ascension Investment Management encourages its external investment managers to flag any investments or funds not on the prohibited list, but that could nonetheless be problematic. An Ascension ethicist helps Ascension Investment Management determine whether to add that investment to its do-not-invest list.
Active influence
Through impact investing, Ascension Investment Management aims to improve access to goods and services that may be in short supply in poor areas, such as potable water, safe food, adequate housing, education, health care and financial services. Ascension Investment Management also selects investments that it believes will help the environment by conserving energy or water. The investments can be either domestic or foreign.
One Ascension Investment Management impact investment is in a company specializing in food production in emerging markets. One area of activity for that company is building dairy farms in China to produce high-quality milk. Another impact investment is in a company that erects safe, affordable housing for low-income people in Latin America.
Ascension Investment Management requires managers or companies receiving such funds to demonstrate the impact of the investments each year.
As part of its impact investing strategy, Ascension Investment Management has helped fund a company that built this and other dairy farms in China to produce high-quality milk.
Jessica Cook is senior director of business development for Ascension Investment Management. During a panel discussion on impact investing at Washington University in St. Louis in April, she noted that it can be difficult to measure the actual impact of impact investments. For instance, for the investment in the Latin America home-building project, Ascension Investment Management is measuring success by the number of homes built and the value of the homes. However, said Cook, that does not capture the total impact, such as the improvements in the lives of people who had been living in shanties and who are now living in modest but viable homes. Cook said in some ways it is a "leap of faith" to make impact investments because it can take a long time to understand the impact.
Addressing misperceptions
Impact investing is one of 20 investment strategies Ascension Investment Management offers, all of them compliant with its socially responsible investment guidelines, according to Erickson. These strategies include traditional investments such as domestic and international stocks, bonds and cash as well as alternative investments such as hedge funds, commodities, real assets and opportunistic credit. Private equity, credit and real assets strategies are available to financially sophisticated, qualified institutional buyers, said Erickson. Ascension Investment Management enables its clients to select from among these investment strategies to build a mix that best meets their needs, said Erickson.
Erickson said a challenge in attracting new institutional investing clients is dispelling the common misperception "that the application of socially responsible investing guidelines automatically reduces portfolio performance." But, he said, "an increasing number of investors believe that evaluating companies by social metrics like governance, environmental standards and labor practices can provide insight into which companies will outperform over time."
Erickson expects to see increasing interest in the types of strategies Ascension Investment Management is pursuing, including impact investing.
In fact, he said, "the biggest change in the socially responsible investing space is the growing interest in impact investing and the idea that selecting investments that fit a socially responsible investing profile does not automatically mean you are sacrificing returns."
Quoting a colleague, Erickson added that impact investing "is not just something we do because it's trendy, but because it's part of our DNA and what we think about on a daily basis."
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