Executive summary:

The language of impact. At Cornerstone Capital Group, we apply the discipline of environmental, social and governance (ESG) analysis along with financial analysis in assessing investment opportunities designed to help our clients achieve positive impact – the societal and environmental change resulting from investment decisions. Our overarching objective as a firm is sustainability, which we define as “the relentless pursuit of material progress towards a more regenerative and inclusive society.” In this report we use ESG in discussing issues and investment strategies, and “impact-driven investing” when “investing for impact” would be cumbersome. We use “sustainable” or “sustainability” when referring to broad concepts.

Why invest for impact? A growing number of investors wish to integrate their investing activities with the values that inform the rest of their lives or their organizational missions. They want to invest in ways that pay heed to both their financial priorities and their commitment to environmental or social issues. Some investors believe that doing so will grant them a financial edge in the marketplace. Others wish to influence the direction of the economy because they see their own futures as inexorably linked to the future health and prosperity of the world.

Why is this trend becoming more mainstream now? Increasing demand for impact-oriented investments is being driven by a “perfect storm” of factors. The global financial crisis of 2007-08, the Deepwater Horizon disaster and other events have made investors increasing conscious of the systemic risks facing their portfolios. Beyond financial instability and the risk of industrial accidents, these risks include climate change, globalization, and inequality. Also, technology is driving greater transparency and accountability for companies, even as more of their value is tied to intangible factors that are becoming harder to measure through traditional financial analysis.

Key players. Today, the sustainability ecosystem includes some of the most sophisticated investment organizations in the market, as well as professional associations, data providers and others that can help investors invest for impact. With the help of a financial advisor who possesses the right expertise, investors can select the optimal mix of strategies designed to achieve both financial and impact objectives.

ESG-focused investing strategies and financial performance. Traditionally, the mainstream financial world has claimed that ESG-focused strategies would underperform their more traditional counterparts. However, experience and research have shown that these investments offer competitive returns. Recently, evidence has emerged that attention to ESG concerns may help both investors and companies mitigate risk and, in some cases, boost performance. Of course, investors may differ in the societal values that they bring to the market, just as they have differing risk tolerance and time horizons. Numerous strategies have evolved to help investors integrate their values into their investment portfolios. The best-known strategy, screening (positive or negative), remains important, but investors seeking social impact may also choose strategies such as active ownership, ESG integration or thematic investing.

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