Sustainable and responsible investing or impact investing aims to provide a return on capital and influence corporate behavior with respect to environmental, social and governance policies.
U.S. Based SRI assets have blossomed from less than $200 billion in 1995 to more than $3 trillion in 2012. Some perceive that these funds and investment vehicles sacrifice some profit to affect social good.
Marc Delphine, the Seattle based CEO of the newly launched Equality Funds, believes that companies that put people over profit will in the long run produce more profit. I sat down with Delphine to discuss the fund and the insights he has gained from the leading this venture.
Question: Briefly describe the value proposition that Equality Funds brings to its investors.
Answer: Equality Funds advances global equality for Gay, Lesbian, Bisexual and Transgendered persons by making investments in firms that support gender and GLBT rights in the workplace. Our research indicates that over time, companies with strong equal rights policies outperform the broader market. We invest with our hearts and values, and by doing so aim to provide a higher rate of return for our investors.
Q: Why do these companies tend to outperform?
A: Intuitively companies that treat employees better will perform better over the long run. It is easy to realize quick gains by cutting investments in your workforce, but those results are short lived. For the most part, companies that treat their employees well also treat their customers well, creating both a brand and culture where people not only want to buy from a company they want to work there. While there are anomalies and outliers, our research over a 10 year period shows that companies scoring high on the Human Rights Campaign Corporate Equality Index significantly outperform the S&P 500.
Q: How did you come up with the idea for the fund?
A: In 2007, I was the vice president of the Portland Area Business Association, a GLBT Chamber of Commerce. At one of our events, a speaker from the Human Rights Campaign talked about how companies and corporations had done more to advance the rights of LGBT people than government. Companies provided domestic partnership benefits, marched in gay pride parades, enacted strong anti-discrimination policies in the workforce, and actively marketed to the GLBT community.
We started looking at these companies financial performance, and our first data from 2002-07 showed that companies scoring high in the HRC Equality Index nearly doubled the return of the SP 500. When the market collapsed in 2008, all stocks took a hit, but the continuing research showed these companies bounced back stronger and faster than the broader market. Armed with data and a passion for the mission, we started gathering support for the fund.
Q: Describe the current state of the fund and some of the key elements that helped you launch?
A: Currently we have assets under management, are generating revenue and operating in the black. We are classified as a Separately Managed Account, which requires far less regulatory overhead costs than a mutual fund or Exchange Traded Fund. Everything we have been able to accomplish starts with a good team. We have been able to recruit incredible talent, and have made many team members part owners through equity shares in the company. We believe that people with an ownership stake are much more invested in the success of a venture.
Q: What lessons have you learned as a social entrepreneur that you would like to share with others?
A: First, have a heart in what you are doing. If you don’t believe in the cause, if you are just trying to make money but you don’t believe in the product, service or cause you are advocating for you will fail. Second, develop a strong team of people you know, like and trust and who have backgrounds different from your own. Third, and most important, be willing to play the fool. Be willing to check your ego at the door and learn things from other people. The more you ask, the more people will be willing to help. Never be afraid to not be the smartest person in the room; that is how you learn and grow as a leader, and how your enterprise will succeed.
Ryan Davis is the dean of the Business and Workforce Education department at Everett Community College.