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The Impact Report

An investor discusses driving change by doing well

Cary Krosinsky discusses the shift towards value-first impact investing.

The following Q&A is an edited excerpt from the Bard MBA’s March 17 Sustainable Business Fridays podcast. Sustainable Business Fridays brings together students in Bard’s MBA in Sustainability program with leaders in business, sustainability and social entrepreneurship.

Values-first versus value-first investing: Educator, author and investor Cary Krosinsky argues that the "s" differentiating the two terms represents a significant shift in the impact investing field. 

Krosinsky’s latest book, "Sustainable Investing: Revolutions in Theory and Practice," co-authored with Sophie Purdom, was published in December. The author of two other books on sustainable investing, the educator also teaches at Brown, Yale, Maryland and Concordia universities. His advisory work includes acting as lead consultant to a Principles of Responsible Investing working group that resulted in a climate change asset owner strategy framework for COP 21.

Krosinsky spoke with Bard MBA in Sustainability Director Eban Goodstein about how the approach to sustainable investing is shifting from negative to positive approaches and about the business case for value-first investing.

Bard MBA: How did the themes of your first two books differ from your latest book?

Cary Krosinsky
Cary Krosinsky: Going back to 2007, our first book, "Sustainable Investing: The Art of Long-Term Performance," was perfectly timed for the financial crisis. The field that had grown up over the previous four-plus decades came out of more negative approaches, and [co-author] Nick Robins and I thought that it was important to try to steer the field in a more positive direction. The book was a line in the sand as to how the field was starting to reshape itself.

Fast forward a few years, we thought, "Let’s write a book on what investors are actually doing in the space." That was "Evolutions in Sustainable Investing," which came out in late 2011. It looked at 15 fund managers, had contributions from thought leaders such as Paul Hawken and regional perspectives. It’s a nice compendium for those interested in seeing what was happening in the space and we continue to use it in our teaching.

Fast forward another five years and we have our new book, "Sustainable Investing: Revolutions in Theory and Practice." It’s very much intended to be a look at what investing needs to be, going forward, to solve the problems that we all face.

Bard MBA: What is the difference between positive and negative approaches to sustainable investing?

Krosinsky: It’s described in the new book’s first chapter, "The Seven Tribes of Sustainable Investing." One of the so-called "tribes" is a values-first approach, which is very much rooted in religious mandates, such as a desire to divest from South Africa during the age of apartheid, or, going back, concerns about weaponry, alcohol and tobacco. The origin of the field is deeply rooted in not owning companies that don't meet your personal values. And that continues to be a large portion of this field.

We describe our preference for a more positive approach as value-first. Various fund managers have experienced a much better financial performance from that perspective. This is another of the seven tribes we discuss in the book.

The value angle has the potential to encourage the dynamic that financial considerations need to be primary if we’re going to tackle the problems we face, as well as the sustainability solutions that we require. If we can get both of those engines going in parallel, we end up with a positive dynamic that will allow systems to fix our problems. It’s more economically beneficial.

We describe our preference for a more positive approach as value-first. Various fund managers have experienced a much better financial performance from that perspective.

Bard MBA: How can sustainability and impact investing begin to drive dollars into the space? Folks can do it at least as well as the market, if not better, by finding companies that are doing well on both the sustainability and the finance side.

Krosinsky: Exactly. From our point of view, one of the barriers that remain towards scale when it comes to impact or sustainable investing is that there is a fairly deep-rooted perception that you leave returns on the table when you take sustainability into account in your investment choices.

That’s partly true, actually, because if you do look at the first wave of socially responsible investing and the larger billion-plus dollar funds that grew up out of that first paradigm, those funds actually have struggled to perform well. A lot of that has to do with negative screening. It’s not by and large a good investment strategy.

Fortunately, the positive approach has performed much better. We’ve been writing about that in our books all along, and it’s only becoming clearer that there is a financial argument. There is at least the chance of added performance by taking these things into account.

Bard MBA: There’s a lot of excitement around moving money into the solution space and away from the problem space. How much opportunity is out there?

Krosinsky: Somewhere between $100 billion and $1 trillion of capital commitments have been made by large institutions such as Morgan Stanley and their peers, as well as large pension funds such as the New York State Common Retirement Fund, Europe especially, and the Chinese government. Enormous capital is starting to emerge looking for these solutions.

We need more capital to be deployed. One of the chapters of the book is on the "value of everything," which is $450 trillion in tradable assets, or potentially tradeable assets, which is an important perspective. Half of that is institutionally managed, and we need a larger percentage to be going after solutions than is currently going after them.

There are other series of opportunities we need to tackle. One is increasing the issuance of instruments across asset classes that seek these solutions — green bonds being one of a number of such increased opportunities. Investors can struggle to find them.

Those who are driving sustainability change can be inside a company, or at a government level, or trying to establish policy, setting incentives or doing insurance data. There’s really a big, emerging system of opportunities. That will create jobs, and if we get it right we’ll solve problems and create more opportunities.

There is a fairly deep-rooted perception that you leave returns on the table when you take sustainability into account in your investment choices.

Bard MBA: How much quant finance do you have to master to be able to operate effectively in this space?

Krosinsky: There’s space for people of different skill sets. Most people have an environmental, social and governance (ESG) issue of preference. One person might want to help solve the challenge of indentured slavery or sexual trafficking. Another might be more interested in renewable energy.

Another might be interested in getting a position at a large corporation to try to help drive change from the inside, or as a consultant, or with a bank. There’s a wide range of paths. So, quantitative skills can be helpful. Depending on the situation, they’re certainly something that a lot of folks will look for even from think tanks, and not just startups but also hedge funds.

Quite frankly, had you asked me the question two years ago I would have said, “Well, actually it might be a bit challenging to get a job. There’s a lot of interest, but there aren’t a lot of openings." But I think that’s changed in a very short period of time, and we’re seeing a rise in social entrepreneurship opportunities left and right.

The field is starting to head in a better and better direction. It’s going to take demand for more sustainable investing from the average person who sees that it’s in their own best financial interest, but this field should only grow as that perception continues to change.

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