Demystifying Impact Investing
Grant Conroy, CIM, FEA
Originally from the UK, Grant spent the first 17 years of his career in institutional equity sales & trading with Goldman Sachs, London. Grant moved to Vancouver in late 2013 with his wife and now has three small children. He joined the Genus team in July 2016 where his main focus is on individuals & families and managing wealth through generations. In this he helps with the difficult conversations through building a framework, using examples of what has worked for others and understanding the client’s values, goals and aspirations. Grant values integrity, working without ego and being able to work as part of a team with clients other advisors to best serve the clients' long-term interests.
Grant is an FEA, successfully obtaining the Family Enterprise Advisor designation in 2018. He also has the CIM designation and a BA in Business from Kingston University, England. Outside of Genus, Grant serves as the Treasurer to the Writers Exchange Children’s charity and as Treasurer to the B Corp group in Western Canada.
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[00:00:06.810] - Cindy Radu
Welcome to the Tamarind Learning Podcast. I'm your host. Cindy Radu, Chief Learning Officer for Tamarind Learning Canada. Tamarind Learning is an online wealth education platform that develops practical foundational learning programs for beneficiaries and their advisors to help them prepare for the responsible stewardship of wealth. As part of the Tamarind Learning platform, I have the privilege to speak with experts on topics relevant to families of wealth and family offices. Today I want to welcome Grant Conroy from Vancouver, Canada as our guest expert. Grant, thank you so much for sharing your expertise with us today.
[00:00:44.500] - Grant Conroy
Good morning, Cindy, I'm happy to be here.
[00:00:46.980] - Cindy Radu
Excellent. Before we get started on our topic of Impact Investing, I'd like to introduce you, Grant, to our listeners. So I understand that you started your career in London in 1996 and was hoping you could tell us a bit about your experience across the pond and how you ended up in Canada.
[00:01:23.460] - Grant Conroy
Sure, yes. I started, guess I was drawn to the city, kind of in London, so like Wall Street, but in London and the bright lights. And I worked there covering asset managers for initially North American equity markets and then that kind of borne out to UK equity markets. And so I spent 17 years effectively, sat on a trading floor in front of screens, helping asset managers transact eventually in global equities. So I kind of got addicted to the markets whilst I was there and learned a lot and understood a lot around macroeconomics and then met my wife who was from Vancouver, Canada. And I like to say she's sort of dragged me back here, but it's a pretty nice place to be. So I had a bit of a clear change after 17 years in and now I've ended up in private wealth management, kind of the other end of the spectrum of investing. And by that I really mean that the decision0making is more an emotional end, as far as when you're actually transacting in the market to sort of out every basis point and it's less about emotion.
[00:02:36.510] - Cindy Radu
So on that point, Grant, I think you also did your FEA designation a few years ago.
[00:02:44.700] - Grant Conroy
I think yeah, it was interesting. I actually joined a company in Vancouver called Genes Capital Management and my mother-in-law was one of the co-founders. So the Family Enterprise Advisor program was beneficial from two senses. One, in terms of working with family, and two, in terms of understanding how to service families. And we have a lot of multi-generational family clients that we work with. So it's been invaluable to me and it started a whole journey of learning, which as you mentioned, personal planning has been a big part of as well and it's kind of helped me along the way.
[00:03:24.810] - Cindy Radu
Excellent. I do want to acknowledge that in 2022 Genes Capital, the firm Grant works with, won a very prestigious award out of New York called the Family Wealth Report Award, in the responsible investing category for impact investing products. So on many levels, we're very fortunate to have Grant as our guests on the topic of impact investing. And Grant, I'd like to just start with the very basic question of what does impact investing actually mean?
[00:04:43.050] - Grant Conroy
Yeah, and that's a very good question. There's a lot of advertising and a lot of confusion around this and especially at the moment it seems to have become a bit of a buzzword over the last four or five years. But effectively it's investing in a way to try and seek not only financial return but also at the same time having a positive impact environmentally or socially. I would say that all investing has an impact of some sorts but the term impact investing really is talking about having a positive impact on an identified problem or goal or area in the world.
[00:05:23.590] - Cindy Radu
Okay, so that sounds very optimistic and forward thinking. How does that concept of impact investing practically differ from what people think of as regular investing?
[00:05:41.830] - Grant Conroy
Yeah, so I guess it's kind of looking to have a benefit whilst also getting a return. People generally want to get a return when they're investing. So I guess when you're having an impact, the two things to think of is the financial return and then the impact part of it. And so if you think of just the impact side for a moment and you can have our sort of spectrum almost from philanthropy which could be considered concession investing, you're not expecting return off there, but you're expecting it to have an impact. So you make a donation, the organization then goes and tries to have an impact on the problem. And then the other end of that is where you could be directly investing in a company that has identified a problem and is trying to fix something in the world or have positive impacts in the world with like it could be a new product or a new drug or new way of doing something. And so you could be in for a very high risk, high return, but also it's a high amount of impact if it works. So it's kind of like a spectrum from on the impact side of just donations or philanthropy to actually then trying to fund a company who's trying to do something that could have made that change.
[00:06:58.510] - Grant Conroy
On the investment side of it, it still kind of sits with the risk return. There's no sort of free lunch. The higher the risk, the higher potential return, and then there's everything in between there. So again, if you're investing in a startup, there's obviously high risk and the opportunity of something of a bigger return. Or you can try and invest in listed companies somewhere in the middle that are working towards having an impact in the world in some way. And we can go into that a little bit more in a moment, which gives because a listed company is slightly less risk and slightly less return to even just like an impact GIC whereby the money gets pulled and then loans get made out of there. And so the GIC is very safe and you're going to get a pretty low return, but the money might actually be going to some good at some point. So it really is a kind of big spectrum from literally philanthropy to sort of high risk angel investing.
[00:08:02.290] - Cindy Radu
Okay, so something for everybody who's either new to impact investing or maybe a bit more experienced and willing to step out a little bit further on the ledge, if we can use that analogy.
[00:08:19.140] - Grant Conroy
Yeah, I should say. And it really comes down to the impact part. So I guess what I just described there for the investing part is the same for all investing. You could go and open a GI or you could go and do a very high risk investment. And so it really is the adding on of the impact part that makes the difference of what kind of impact do you want to have in what area, and then trying to find something that fits with the right amount of risk.
[00:08:47.030] - Cindy Radu
So can you give us an example? I think that might be a good next step.
[00:08:51.660] - Grant Conroy
Yeah, so one example. There's one actually I kind of quite like. And I heard this a few years ago. And I'm not sure where it is now. But effectively. In some sub Saharan parts of Africa. There's a company that's set up to start solar like hubs. Effectively. Where they use solar to recharge batteries and then people would come and grab a battery and take it home and then that could actually power their home for a couple of days and then they would take it back and change battery. Now, this was substituting paraffin lamps or some other kind of fuel that they were burning in the home to get light or to get heat or to do whatever it is, the power generator. So it's using renewable energy and batteries and there's a whole host of benefits from it because the people now that are using it aren't breathing in the fumes. You're not creating as much CO2 it's actually somewhat endless energy and renewable. And then the hubs actually became a focal point for other businesses to sell auxiliary services and things. So that is sort of one of the higher risk startup type investments.
[00:10:11.690] - Grant Conroy
The company that was doing it obviously needed funding to buy the infrastructure to get set up and then to put this in place. Sounds like a very good idea. Makes sense to me. And this is why I remember this one, because I just liked it. And that can be an example of an impact investment. A sort of listed example, so a listed equity to a stock or shared just trades on a regulated market so anyone can buy and sell it at any time. Maybe one example is Vestas Wind where their revenues, they make the wind turbines, they're out of Denmark and their revenues 100% come from making and putting in wind turbines. So it's creating that renewable power. Whereas other people do make wind turbines, but not all of the revenues come from that's one part of the business. So by investing in that listed company, you're going to get less return, vestor swing, but possibly versus the private equity, but it's still having a positive impact, like they are still working to create good in the world and solve an issue. I hope that makes sense.
[00:11:15.250] - Cindy Radu
Yeah, those are great examples. Thanks. I think something else that would be helpful, certainly for me and I'm sure for other listeners, is a lot of the terminology in investing and sort of layering on this impact investing. You get a lot of acronyms and different terms that can be a bit confusing, like ESG and SDG sustainable Impacts. What do you find people are asking most commonly for clarification around with terminology and what are some of these keywords that people should be aware of in the definitions?
[00:11:57.070] - Grant Conroy
Yeah, it's a great question. I think that advertising and certainly the financial industry as a whole is not really helping here because there's no clear definitions of any of these terms, there's no sort of official definition of any of these terms. I've kind of evolved and people are just using them in different ways, but effectively, I would say. So ESG, just to break it down, it's environmental, social and governance and it really means that you're taking into consideration those three factors when you're making investment decisions. So you're considering the environment, the social impact and the governance of companies. That doesn't really mean that you're having a positive impact necessarily, it just means you're considering them when you're investing. So what a lot of ESG investing does, and it goes back to my point that all investing has an impact. So sometimes the sustainable investing or responsible investing or ESG investing is merely not investing in companies having a negative impact. So that might be companies that are producing a lot of CO2 emissions or companies that have got a very poor human rights track record. So those companies under those types of investing, ESG, sustainable, responsible investing, people use those terms interchangeably and very differently.
[00:13:12.990] - Grant Conroy
That might just mean that they are excluding the bad stuff. That doesn't mean it's necessarily having a positive impact on the world in any fashion. It's just not investing in the sort of negative impact ones. And that's why impact investing as a term has kind of come about because really it's talking about the positive impact that can be had through the investing. The problem is that it all gets jumbled up and thrown around and it's obviously the definitions and the delineations got missed. SDG you mentioned in there, refers to the UN... As all this is evolving and again, it's fairly young and it's fairly new. There are lots of different ways of what is a positive impact. And so the UN actually came out with 17 Sustainable Development Goals of identified areas that we need to address in order to, I guess, be sustainable. And so you can Google the UN SDGs and you'll see the 17 of them, but it covers everything from sort of environmental impact to clean water to healthcare, education. And it's really global goals, as a sort of blueprint to help the planet and help people. And so what's happened over time is that the SDG, Sustainable Development Goals, as identified by the UN become the framework now that most people are gravitating towards when they're talking about having an impact.
[00:14:48.880] - Grant Conroy
And so it's kind of thought of, which of the goals are you having an impact on, and then how would it be having an impact. So it gets down into a few more layers than that. But I would recommend googling the UN SDG, there's 17 of them, to understand that.
[00:15:07.590] - Cindy Radu
That's really important information. I think that would be a great starting point for a lot of people just to have a look at that framework. If you're new to this area of impact investing, to get a sense of what else is out there from a non-investment perspective, coming from the financial side of it, coming from where can you really make that impact? Again, this all sounds really fantastic, but when you're doing more traditional investing, it's pretty, I'm going to say easy to measure wins and losses and how whatever your measure of success is relative to your risk reward goals. When we start moving into something like impact investing, how do you actually measure impact? How do you know you're achieving your goals or the goals your client has expressed for you?
[00:16:07.590] - Grant Conroy
Yeah, and that's kind of the million-dollar question at the moment for the industry and certainly for reporting concerns. I would say the first thing and going back to those UN Sustainable Development Goals, what has happened is the industry is kind of coalesced around them. So the first thing is it's like okay, what type of impact are you actually going for? And this is a good thing for listeners to understand when they're trying to impact investing, sounds very sexy, it's a very now term. But it's like what kind of impact do you want and where would you like it? So some people are very focused on education and really want to have an impact on improving education. Others might be environment, others might be sort of indigenous issues and so we all have our own values. And so I think the measuring of the impact is very key and you need to understand how that's going to be measured up front. Now depending on the investment there's going to be very different KPIs or key performance indicators or measurements or ways to measure that impact and see how it works. So if we go back to a private equity investment so you are literally buying some shares with startup or you're investing in a young company that's trying to achieve an outcome that's going to have a positive impact on the world, you should be able to get a fairly good idea of what it is they're trying to do.
[00:17:37.530] - Grant Conroy
The goals or the targets along the way to measure are they on track and are they going to have an impact? The problem with that is that they're going to have issues and road bumps. So you need to be flexible but it's a communication thing there in terms of understanding what you're investing in, what the impact is going to be. When it's a lifted company there's no sort of template way to do it again. But we have come up with a way and other people have come up with a way and one thing that we look at is we look at two metrics I guess. One is the carbon created per million dollars of revenue. And so that's looking at the sort of environmental impact and so by putting it into a million dollars of revenue, the carbon created per million dollars revenue, you can cross compare within an industry or you can cross compare different industries and then we look at the impact they're having. The positive impact they're having using data providers such as MSCI or Sustained Analytics who scrub company's quarterly reports or annual reports, semiannual reports, and they try and work out what impact the company is having in what areas.
[00:18:50.170] - Grant Conroy
Now under the reporting rules in various countries there is becoming more legislation around reporting on emissions or positive impact that the company is having but they're not consistent across countries and then they're very slow to put in place. A lot of the reporting rules are accounting based, and numbers. I guess as the industry sort of is evolving or as impact investments maturing there's more demand for this information and companies are responding and providing it. So MSCI and Sustainably, two of the main data companies out there that scrub these quality reports and then give you numbers that you can then use to actually measure the impact. For a listed company it becomes a lot more tricky because not many listed companies get all of their revenues from doing something good. So there's only maybe 120 companies out of the MSCI World which is about 2000 of the largest companies in the world, that actually qualifies having a positive impact. So it's growing but it's a small number so measuring it is tricky and I think really for the listeners the main thing is understanding going in, what impact you're looking to have and how are you going to measure it with the investment that you're doing or how does the investment measure it.
[00:20:12.360] - Grant Conroy
So there's not an easy answer, it's just making sure that you understand how it's going to be measured and how you know if it's a success because you can tell the investment return if it's successful or not but it's hard to actually know if the impact is successful or not.
[00:20:32.690] - Cindy Radu
Grant, that was really a fantastic description and very helpful. I think we could probably talk for another couple of hours on this topic so we'll probably get you back on another follow up podcast if you're open to that. A couple of takeaways from today is I loved your comment that all investing has an impact but what I really like about what you said is that thinking about what kind of impact do you want to have with your investing and how are you going to measure that impact? So Grant, it was great to have you on today, I certainly learned a lot from you. Thank you so much for joining the Tamarind Learning podcast and we'll look forward to having you as a guest again, hopefully in the not-too-distant future.
[00:21:25.300] - Grant Conroy
Excellent, thank you for having me.
