Boards Consider the Complexities of Impact Investing

Senior managers and board members of businesses and nonprofits wrestle with the issues inherent in balancing profitability and social responsibility in their investments, so I read “The Power of Money With a Purpose” in  The November/December 2019 issue of NACD Directorship, a publication of the National Association of Corporate Directors. Authors Erin Essenmacher and Judy Warner say that impact investing is rooted in the desire for organizations and their stakeholders to live in a healthy environment that is sustainable, yet they also expect to receive a return on their investments.

In saying that it’s important to understand what investors want, they trace some of the origins of impact investing. While it once may have been rooted in faith-based practices, it is more often today associated with an understanding that businesses share a responsibility for the world’s condition. They give examples of how some businesses and nonprofits have influenced the rise of impact investing.

The NACD Public Company Governance Survey (2019-2020) revealed this about the attention that boards gave to environmental, social, and governance (ESG) factors in the last year: “52% Improved understanding of the company’s current ESG-related performance, 50% Reviewed ESG-related risks and opportunities, 49% Discussed the link between ESG and the company’s strategy, 49% Worked to improve the company’s reporting about environmental and social efforts to investors or stakeholders, and 37% asked management to develop and report better performance metrics for ESG to the board.”

Board members of business and nonprofits must discuss impact investing and ESG practices regularly, and make decisions in light of these considerations, because stakeholders are concerned about the socially responsible practices of the organizations they do business with and how they invest their money. If you have some thoughts to share on this topic, please post them.

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