Differentiating Impact Investing from ESG and Activist Approaches in the Canadian Financial Landscape
- Impact investing is an investment strategy that aims to generate specific beneficial social or environmental effects in addition to financial gains. The point of impact investing is to use investment capital for positive results. Source: investopedia.com
- An activist investor, typically a specialized hedge fund, buys a significant minority stake in a publicly traded company in order to change how it is run. Goals may be as modest as advising company management or as ambitious as forcing the sale of the company or replacing the board of directors. Source: investopedia.com
- ESG investors seek to ensure the companies they fund are responsible stewards of the environment, good corporate citizens, and are led by accountable managers. Source: investopedia.com
When interacting with various members of the Canadian financial community, we often observe some ambiguity in the perceptions of how Clear Skies can be compared to other asset managers in the market. A certain level of ambiguity is to be expected since investment styles are varied and more akin to behaviors than to precise mathematical formulas.
We, therefore, believe it is worth taking the time to delineate some boundaries around certain investment approaches. Indeed, sometimes the best way to pinpoint an identity is to explain what we are not.
- As an impact investor, Clear Skies is not an ESG investor. Although we use ESG tools in the risk section of every investment analysis we conduct, our impact approach prioritizes using impact criteria to identify opportunities that align strong expected return profiles for our clients with well-defined positive effects on society and the planet.
- As an impact investor, Clear Skies is not an activist investor. While both approaches make use of investee engagement, activists typically have a shorter investment horizon and engage in a more focused (sometimes aggressive) manner. Activism can lead to significant point-in-time value, but this value can be concentrated into very few hands.
The team at Clear Skies is too humble to claim that impact investing is better or greener than other investment styles. We simply favor impact investing because it is closer to our values and is a natural extension of our core expertise: fundamental analysis. Indeed, our team members have benefited from almost a century of investment wisdom, dating back to Benjamin Graham, Berkshire Hathaway and others.
The process is quite simple, though its implementation requires hard work: use value investing to identify firms that will experience robust long-term growth and that will be recognized over time by the market for such growth. Our opinion is that impact investing is the next step in rounding out a hundred years of Graham’s philosophy. We apply Graham’s mindset to a wider range of information, namely the solutions provided by companies to address the challenges of the 17 UN Sustainable Development Goals. This is why each analysis is, in fact, the merger of a value analysis with an impact analysis. We do engage with our investees to understand their impact journey and convey our investment intent. However, these engagements involve providing support over time rather than attempting to push or pull a corporation in a very specific direction at a very specific time.
In summary, Clear Skies leverages the tools found in multiple knowledge streams to ensure our investments are sound and aligned with our values and those of our clients. These values are ambitious as they demand returns while changing the world. As you might have heard from one of the most ambitious individuals in North America, Arnold Schwarzenegger, in his recent biographical series ‘Arnold’: “Be useful.” A direct guiding principle from his father. We believe it is a great way to evaluate any impact investing approach!
So, we pose this question to you, dear stakeholders: How do you believe we can be useful for your objectives?