David Fanger is the CEO and founder of Swell, an impact investing platform that helps people invest in equity portfolios that map to the UN Sustainable Development Goals. It identifies high-impact, high-potential companies that are focused on a positive future. Following is a transcript of the video.
Sara Silverstein:Soone of the things that you do differently is that you’re looking at the core competency of the business and not just how they do business. How do you select what’s socially responsible?
David Fanger:Yeah, there’s a lot that goes into it. Typically you’d see, right now, socially-responsible companies with what’s called an Environmental, Social, and Governance rating and we go a step further than that. We’re looking at what the company is doing not just how they’re conducting business. So, an ESG rating might say, “What are the policies and procedures of this company?” and if they’re socially responsible anditmeanssaying, “We’ve got, you know, solar panels, or we use wind energy to run our business.” That’s one thing, that’s ESG. We’re looking at things from a more impact investinglens. And, what that means is that we want to see in the business, what type of revenue they’re producing in their core business that aligns with the UN Sustainable Development Goals. And these are 17 Sustainable Development Goals that are considered to be by 193 world leaders to be the most important challenges we’re facing as a planet. So, things like clean water, clean energy, and disease eradication are a part of that. And we’re looking at howisthat business developing revenue that aligns with those goals?
Silverstein:And, what sorts of companies are in people’s portfolios that are considered socially responsible that you don’t necessarily think belong there?
Fanger: Yeah – sometimes you’ll – even oil and gas companies, Anadarko Petroleum, Exxon Mobil, these are companies that would be in some ESG portfolios. Even recently, over the last month, we saw a name like Facebook in these portfolios because in their data centers they were using renewable energy. Versus saying, you know, “How can this businessthat has 98% of their revenuetied to ad revenuebe socially responsible?” So, we look more at the companies in a differentlens. So, a couple of examples, one, Mohawk Industries, would be a company in our zero waste portfolio because they’re taking plastic bottles and making carpet out of that or Xylem is in our clean water portfolio because they align with Sustainable Development Goal number six, which is saying, “We’re looking for clean water for all.” Now, that’s a company that produces water pumps, advanced drainage systems, something like that would be in our clean water portfolio as well because they’re creating drainage that allows-you know-agriculture to really get to this water in a more sustainable way. So, those are a few examples, that would be more for us impactful companies that would be in our socially responsible portfolios.
Silverstein: And, weheara lot about these 17 Sustainable Development Goals. Do you, which ones are your favorites, which ones do you think will have the biggest impact on the world going forward?
Fanger:Yeah, I look at it like from a hierarchy-it’s like what do we need as humans to survive? Ontheirfirst order, we all need to have access to clean water. So, that’s SDG number six. There’s also health and well-being, which is SDG number three. So, those are two that are top of mind to me. As we think about-some of these things like even our air quality and how that has an effect on our health. Certainly if your health is at risk then that would affect SDG number three-wewant tomake sure that we’re aligning, you know, with these companies and investing in them that are actually producing results that aregoing tohelp us there, but also again, making sure we have access to clean water. Those are two very important ones.
Silverstein:And do you think impact investing can get the same returns as traditional investments?
Fanger: Yeah, there’s been so many papers that have come out on this topic now and a lot of them we put out on our site but, yeah-I mean, there’s not only studies that are showing now that you can meet or exceed broad marketindicessuch as the S&P or Russell 3000. You know, one popular one, it’s called MSCI KLD 400, and, it’s an index that’s, it’s got this kind of a screen on it, this Environmental, Social,and Governance screen on the 400 companies in that portfolio. And, over the past 25 years since it’s launched, it’s outperformed the S&P 500 and the Russell 3000. So, that’s a good example. And then, we just launched our portfolios back in September of 2016. And, to date we’ve also outperformed the Russell 3000. So, we’re outperforming them-others like Al Gore’s firm, Generation Investment Management, they’ve shown theiroutperformanceas well. So, I think, more of these studies and more of this actual performance is coming out for everyone to see for themselves, that they can actually meet or exceed these broad markets.
Silverstein:And what do you think most people get wrong about socially responsible investing?
Fanger: This myth still comes up about, “Can I get the performance out of it?” “Can I actually invest and at the same time be purpose driven?” So, I think it’s great to see that we’ve got companies that are solving these major challenges and they’re poised for growth because, you know, as we think about – you know, Day Zero in, you know, Cape Town and thinking about access to clean water or anything, you know – it’s around clean energy or countries that are now banning ICE, you know, internal combustion engines. All of these initiatives in the companies that are behind those and the solutions they’re providing are going to be the ways that folks that invest in those companies can get the return they’re looking for and not sacrifice it. So, I think it’s great to think long term about not only the return you’re getting, but the social return. There’s a lot of externalities that are not in the stock valuations that will play out over the decades to come and right now we see it in carbon emissions and carbon offsets that, you know, we’re looking for out of companies and we’ll learn more about externalities like data privacy and how important that is. But, I think it’s important for investors to understand that those returns will sooner or later – as they’re discovered and it’s more transparent – will play into the valuations of these companies. So, I think it’s going to be important to take that into account when investing.