A Model for Public Market Impact Investing: Measuring Corporate ESG Intentionality

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Impact Investing
Climate Change
Business Law, Public Responsibility, and Ethics
Finance and Financial Management
Growth and Development
Portfolio and Security Analysis
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The Global Impact Investing Network (GIIN) lists intentionality as one of its four core characteristics of impact investing. It defines intentionality as an impact investor “intentional desire to contribute to measurable social or environmental benefit”.[1] Most importantly, it uses this core attribute of intentionality to differentiate true impact investing from ESG (Environmental, Social, Governance) investing strategies which it says only incorporates “impact considerations”. This research paper rebuts the assertion that impact intentionality and ESG are mutually exclusive and proposes a solution for impact investing using ESG data. By surfacing companies who have shown dramatic improvement in their cumulative ESG score, investors are now able to isolate quantitatively the intentional actions undergone by companies to improve the positive societal impacts of their business. This paper puts forth a methodology on how to measure this Corporate ESG Intentionality and compares the incremental ESG performance of an intentionality portfolio against an alternative ESG portfolio and the US Equity benchmark. The findings show that an ESG intentionality portfolio has a higher correlation between data providers than their overall score universes. This confirms that rating providers agree more on intentionality level improvements than overall scores, minimizing individual rater biases. It also finds an intentionality sample to outperform on impact measures such as GHG emissions per $1M revenue and gender diversity compared to the benchmark and US industry. Lastly, a Scope 1 and 2 emissions model found just 91 companies showing GHG intentionality accounted for 87% of the total GHG reduction in the Russel 3000 universe over a 4 year period. This paper sets the stage for a needed addition to the use cases of ESG data for investors to show impact intentionality: by measuring a corporation’s intention and resulting action to improve their non-financial impact on society through ESG data. Section 1 will analyze the background and current uses of ESG data. Section 2 will discuss the concepts of intentionality and additionality in bringing ESG to the impact investing space. Section 3 will discuss a proposed intentionality measurement methodology and highlight the findings. Section 4 will conclude and summarize the findings.

Christopher Geczy
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