Exploring Additionality in Sustainable Investing @ Sorenson
By Riely White, Haas MBA 2020
I had come to the Winter Innovation Summit with the goal of exploring additionality in sustainable finance, something my classmates and I had been wrestling with over the past couple of months.
I wanted to better understand how leaders in the field were thinking about their investments — was their goal simply to invest in companies that weren’t doing harm or was the goal to put money behind companies whose products or services were positively impacting our communities and our planet?
Midway through the Sorenson Winter Innovation Summit, I stepped away from sessions to join a call with my fellow Principals on the Haas Sustainable Investment Fund, the $3.5 million student-managed portfolio at the Haas School of Business that invests sustainably in publicly listed securities. Throughout the preceding semester, we had conducted rigorous analysis on a host of public companies in sectors ranging from technology, to energy, to healthcare. We had assessed their fundamentals, analyzed financials, and considered their social and environmental impact, presenting our investment recommendations to our teammates and professors weekly and honing our focus. And now, it was time for us to vote as a team into which companies we would make investments.
The conference session that most advanced my thinking on this topic was with Eric Rice, the recently hired Head of Active Equities Impact Investing at Blackrock. During his one-hour long talk with the Student Coalition for Social Impact, a group of 19 student representatives from universities across the country, Rice explained how his overall investment thesis is driven by the UN Sustainable Development Goals and that, when looking at impact, every investment must have three things:
- Materiality: the majority of the company’s activities must be address at least one of the UN Sustainable Development Goals.
- Additionality: companies must be taking a novel approach, whether through technology or business model, to drive impact. By nature, he is looking for disruptors.
- Measurable Key Performance Indicators (KPIs): companies must have clear KPIs that can be tracked to help ensure they are having impact — that they are indeed making progress on the problem they set out to solve.
Importantly, Rice explained that these criteria, and his conception of additionality in particular, was what distinguished a portfolio that was having true impact from one that was simply not doing harm.
As I joined my fellow Principals by phone and listened to pitched for various investments, this framework and the variety of conversations I had had at the Winter Innovation Summit ran through my brain. I asked questions of my classmates about how the proposed investment would have an additional impact in an important area and I wondered aloud about how we would know if a company was making progress toward impact goals.
I drew heavily on this discussion as I decided which investments I would vote for and which ones I would not. And ultimately, I believe we have crafted a public equity portfolio that will drive additional impact, and I am grateful to have had the experience at the Sorenson Winter Innovation Summit that helped me focus on this as a key criterion for our investments.