Lean In: Going Beyond Divestment to Make a Difference

This post by Bryan Shipley of Arnerich Massena is part of a series in which IEN members will share their thinking about intentional endowment investing in the face of this global pandemic. Follow along to get insight into the new challenges and opportunities we as a network are facing.


Bryan Shipley, CFA, CAIA, Principal, Co-CEO, CO-CIO, Arnerich Massena

The challenges facing us, as a society, as educators, as investors, and as a civilization, have never been greater. We knew six months ago that we were in an unprecedented era of environmental issues and social inequality. Now, the COVID-19 pandemic has multiplied those challenges exponentially and highlighted in stark reality why it’s so critical that we begin managing and mitigating them immediately. The good news is that there are scores of companies working hard to build and craft a better future for everyone. And they are discovering that this can be a remarkable recipe for long-term success. All we have to do is invest in them.


You have probably heard that the Chinese character for “crisis” is a combination of the words “danger” and “opportunity.” This pandemic crisis has certainly brought great danger – to our health, our economy, our businesses, our society – but it has also opened the door to a remarkable opportunity. We have been plagued for some time with severe normalcy bias, making it possible for us to believe that our planet isn’t in trouble, that our air isn’t polluted, that our energy strategies will work in perpetuity, and that our water is clean, among other dangerous fallacies. This crisis has stripped away that normalcy bias, allowing us to see with fresh eyes and giving us the opportunity to reimagine our future. We have been invited to take a deeper look at what is truly important to us and where we want to put our energy, effort, and dollars as we move forward from here.


The better future we imagine will be made possible by innovators, entrepreneurs, inventors, leaders – it will be (and already is) private capital that steps forward to invent the technology, build the infrastructure, and organize the supply chains that provide clean water, renew farmland, generate energy, and discover healthcare solutions. For us as investors, this presents tremendous opportunities to participate in the development of the future – both to make a difference and to see long-term portfolio growth.


We know that the members of the Intentional Endowments Network are likely well aligned with this idea and pleased to be counted as an important piece of the future puzzle. But to us, this doesn’t mean that you can simply choose a mutual fund with “ESG” or “sustainable” in its name and walk away. Understanding the nuances of this environment – what are the different approaches, how impact is evaluated, and what methods will accomplish our mutual goals – is critical to successfully making a difference in the world and in your portfolio. In this article, we’ll explore the vernacular of impact investing and how to make sense of the alphabet soup. We’ll compare different approaches to impact investing and discuss the approach that we believe offers the greatest impact, both in terms of real-world changes and in terms of long-term portfolio return.


“Impact” or “sustainable” investing can be thought of as a spectrum of strategic approaches. On one end of the spectrum is divestment, which involves removing certain problematic industries or companies from your portfolio to avoid investing in undesirable things like oil or weapons or tobacco. Rather than being a proactive strategy working toward making an impact, it simply removes investment from unwanted areas. On the other side of the spectrum you find mission-based investing, nearly akin to philanthropy, whereby the investor is highly focused on achieving a specific — often local or regional — mission. And between those two lies a fairly broad spectrum of impact investing options and approaches.



Divestment is a passive strategy based on eliminating undesirable or problematic industries and/or companies from a portfolio. The most frequently divested industry is the oil industry, in an attempt to reduce carbon emissions and often as a response to demand from students who feel strongly about this issue. Divestment strategies have at times been able to have an impact by withdrawing dollars and support from certain industries, though whether that impact is truly meaningful is debatable. The impact of divestment on a portfolio can definitely be significant, though not always positive – one major reason why organizations have been hesitant to dive into impact investing. Currently, divesting from oil does not translate into the same sort of impact as it might have a decade ago: energy, which was 16.2% of the S&P 500 in 2008, now makes up only 2.6% of the Index (recently decreased from 3.9% at the beginning of 2020).


ESG and Socially Responsible Investing

Environmental, social, governance strategies evaluate potential holdings by including in their assessment how a company impacts the environment, how they interact from a social perspective – for example, is their leadership diverse, do they use local vendors in their supply chains where possible – and does their approach to governance recognize today’s challenges and incorporate solutions into their operations? Socially responsible investing is similar, with a particular focus on the social (S) portion of the ESG puzzle, incorporating for instance women-owned companies, veteran-owned companies, LGBT businesses, businesses that feature gender balance, and companies working for social justice. These approaches are sometimes dubbed “triple bottom line” – as in, does the business seek benefits relative to people, the planet, and its profits. ESG has been very successful in developing methods for evaluating regular companies that may not have an explicit focus on impact or the environment but that are still providing larger-world benefits. Investors can invest across a wide variety of sectors and industries, the ESG label suggesting that their investments are aligned with their values. On the other hand, ESG investors are challenged by the potential for “greenwashing,” in which companies implement a few ESG initiatives or fund managers attach the ESG label in front of their fund, whereas in reality they’re not doing much that is truly impactful, or their sustainable enterprises are undermined by other environmentally unfriendly practices and policies. ESG and socially responsible investors need to ensure that the measures they are using to evaluate these factors are meaningful and actual.


Thematic investing

Thematic investing identifies areas, sectors, or themes that are critical to the future development of a more sustainable world; the thematic investor seeks out companies that are actively working toward building that future. For Arnerich Massena, those themes center around what the world needs – food, water, energy, and healthcare. We look for companies that are upgrading water infrastructure, improving renewable energy access and technologies, enhancing agricultural crop yields, and developing new gene therapy techniques, for instance. We believe a forward-looking thematic approach helps investors participate in the opportunities for growth that are upcoming as we move into the future and have positive impacts on society and the environment. These areas — particularly agriculture, water, renewable energy, and healthcare — are areas that are developing rapidly and offer entrepreneurs and innovators significant prospects for progress and development. And because they are areas that the growing population around the world needs, they will never lack for consumers.


In the chart below, we compare each of these investment approaches against a hypothetical global equity portfolio, represented by the MSCI ACWI Index. The MSCI ACWI ex-Fossil Fuels Index shows a divestment strategy, representing the performance of the broad market while excluding companies that own oil, gas and coal reserves. The MSCI World ESG Leaders Index demonstrates an ESG approach, with the Index targeting companies within each sector that have the highest MSCI ESG Ratings. Each of these approaches are compared to a Passive Thematic Index, a custom index constructed by Arnerich Massena to benchmark our thematic approach to impact portfolios. The Passive Thematic Index includes the S&P Biotechnology Select Industry Index (representing healthcare), Vaneck Vectors Agribusiness ETF (representing food/agriculture), Invesco Water Resources ETF (representing water), and Invesco Cleantech ETF (representing clean energy/resource efficiency). Arnerich Massena believes these passive investment strategies represent and target our view of what the world needs. Over the past almost-ten-year period, this offers an at-a-glance view of the results that can potentially be obtained by a thoughtful thematic investment approach relative to other impact strategies.


Source: Morningstar Direct, MSCI. Returns are annualized.

* Passive Thematic Index: equal weight of S&P Biotechnology Select Industry Index, Vaneck Vectors Agribusiness ETF, Invesco Water Resources ETF, and Invesco Cleantech ETF


A thematic approach, combined strategically with ESG and socially responsible investments where appropriate, makes it possible to build a portfolio that truly generates the scope of change the world needs while taking advantage of the opportunities to participate in the growth that will arise as those changes take place.


Here are just a few of the reasons we expect substantial growth in the thematic areas of water, agriculture, healthcare, and renewable energy in the coming decades:

  • Demand for water is projected to grow by 55% by 2050. 1 Currently, less than 1% of the Earth’s water is available for use, and 50% of water in the developing world is lost to insufficient or outdated infrastructure.2
  • Agricultural productivity will need to increase by 60% by 2050 to meet population needs.3
  • Rare diseases affect 30 million Americans, and only 5% of those rare diseases have treatments. More than 560 medicines are currently in development for those diseases. 4
  • Solar and wind-generated power have declined in cost by 90% and 70% respectively since 2009, and Bloomberg New Energy Finance projects ongoing annual spending of more than $300 billion on new wind and solar capacity. Renewable energy sources are projected to account for 77% of investment in energy between 2019 and 2050.
  • We believe the growth of renewable energy sources will radically re-shape the global energy mix over the next two decades.
  • As seen in the chart below, renewable energy sources are projected to grow by 725% by 2040, providing a substantial investment opportunity.


Renewables & The Global Energy Mix


Join us in this movement that will re-shape the world. Go beyond divestment and lean in to impact. This is a perfect time to re-evaluate your investment strategy and look at what will really make a difference, both to the world and to your portfolio. We can help you invest intentionally, for the greatest impact, and with the deepest alignment to your values and vision for the future.


1 “OECD Environmental Outlook to 2050: The Consequences of Inaction - Key Facts and Figures,” OECD; http://www.oecd.org/env/indicators-modelling-outlooks/oecdenvironmentaloutlookto2050theconsequencesofinaction-keyfactsandfigures.htm

2 “Infrastructure Leakage Index and Challenges in Water Loss Management in Developing Countries” by Mahendra S. Kadu and Rajendra R. Dighade; World Environmental and Water Resources Congress 2015  

3 “Growth in crop yields inadequate to feed the world by 2050 – research” by Fiona Harvey; The Guardian; June 20, 2013

4 “Rare Diseases by the Numbers Infographic,” PhRMA; Feb. 28, 2019

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