In Impact Investing, a Generation Gap Persists
Originally published in Wall Street Journal
My father, Blair Hull, founded Hull Trading Co. in 1985, and by the time I was 14, I was learning about puts and calls, and later spending summers on the trading floor. Investing was a means by which I could connect with my dad, and in many ways it still plays a central role in our relationship.
Today we both manage our own investment firms and equity funds. However, we’re of two different schools of thought when it comes to how we approach that work. While my firm invests solely in companies that are committed to promoting environmental sustainability and social equality, my father’s objective is creating optimally diversified and efficient portfolios. There’s no room in his equation for questioning the governance or social practices of the companies being selected.
Despite the emergence and growing adoption of impact-investing strategies over the past decade, there are still many advisers who aren’t sold on the idea of aligning values and financial returns. And given the success many have enjoyed, I can appreciate their reluctance to embrace or even acknowledge another approach to investing.
To me, however, a strategy that doesn’t consider the behavior of companies seems like an inefficient approach to wealth management. What many investment managers tend to overlook is that they’re bringing about potential ecological and social harm with their investment choices and often simultaneously trying repair that damage with their philanthropic efforts. Why not use the portfolio itself to invest with purpose and help create net positive outcomes?
Even as impact strategies generate returns that are comparable or, in some cases, superior to more traditional strategies, it’s hard to win over those who haven’t adopted them. That can be frustrating, especially because many managers do uphold values that are in line with and could be served by incorporating socially responsible factors into their investing. For example, why wouldn’t advocates of women’s rights consider using diverse corporate leadership as a screen for selecting an investment? Or if a manager believes in efforts to promote sustainable ecosystems, why not divest their fund of companies related to fossil fuels? There’s a disconnect there between values and practice.
I think the reluctance of investment managers to welcome impact investing is, to a degree, generational. The school of modern portfolio theory that many of these managers were trained in operates from the premise that we live on a planet with infinite resources that can sustain infinite returns. The issue is that managers remain rooted in that strategy even while there is increasing understanding that we’re living in a world where resources are not only finite but also under extreme pressure. My hope is that my generation, and the ones that follow, will understand that reality and embrace investment strategies that seek to change things for the better.
At this point, my father and I have agreed to respectfully disagree about to how we invest. That doesn’t mean, however, that we won’t continue the conversation and push one another to evaluate our own practices going forward.