March 2022

Today’s investment creates tomorrow’s opportunities: A conversation with Jed Emerson about impact investing

Jed Emerson, Tiedemann’s Global Lead of Impact Investing, recently appeared on FinTechTV’s TheIMPACT with Jeff Gitterman to talk about the evolution of impact investing. Jed currently leads the implementation and strategy of Tiedemann’s impact investing practice. He is recognized throughout the industry as a thought leader and he originated the concept of Blended Value. His book, Impact Investing: Transforming How We Make Money While Making a Difference won the 2012 Nautilus Gold Book Award. He has recently published his eighth book, The Purpose of Capital. Here are the highlights of the conversation.

JEFF GITTERMAN: The impact community seems to be growing rapidly. What is your sense of this space right now and how do we get people to go deeper and start thinking at least about what the questions are?

JED EMERSON: Depending how you count it, there’s somewhere between $20 to $40 trillion dollars in impact investments in global capital markets.

That’s the good news. The bad news is that you’ve got a lot of folks who, having noticed that, are bringing new product, new ideas, new strategies to the market, and these strategies may or may not be alignment with what those of us who have been building this practice for years would consider impact investing.

Impact investing builds on a history of screened portfolios, of values-aligned portfolios, of thinking about how you would invest in public markets with values. Over time, a group of investors have said, that’s all fine. That is a form of impact. But I really want to draw as direct a line as possible between my investment capital and the creation of community- and ecosystem-level impacts that are measurable, that are tied to a strategy and which are intentional. That’s really where we are now. It’s a shift that’s now folding back over to the public markets where people are saying how do you be more intentional in a public markets context? It’s really a great time to be in this conversation.

JEFF GITTERMAN: You’ve written a number of books addressing this topic from an academic viewpoint for a long time, and now you’re at Tiedemann. How are you finding the response to a more thoughtful approach on impact from a more traditional firm? What was the defining moment when Tiedemann said we need a chief impact officer. We need someone like Jed Emerson who is really a deep thinker about this subject.

JED EMERSON: Tiedemann has always operated from a place of values and integrity in terms of how it has approached its own strategies for investing and worked with clients to achieve their goals. About five years ago, Tiedemann merged with Threshold Group out of the northwest, which was a leading direct impact investing firm. They did that, in part, because they were responding to client demand for these types of services and products. In the last five years, as these firms have melded together and you get this conversation about how do you scale with authenticity and integrity?

Tiedemann as a firm has really recognized that it takes a lot more than simply acquiring a firm or introducing product. You really have to think about culture and practices and how advisors are engaging with clients. It’s a conversation about more than money. That’s a challenging process.

I think Tiedemann has decided that, as we go about our growth strategy and continue to offer our services, we are not going to try to rebrand ourselves as an impact firm and get on that bandwagon. However, we want to be clear about how we manage capital and how we want to show up in the market. We want to offer clients an opportunity to be on a journey that goes beyond the first quarter and short-term performances and to look really long term. What is the family trying to do? What are fiduciaries really responsible for over the long haul? And how do we integrate these approaches in a way that adds value for the shareholder as well as the stakeholder community?

JEFF GITTERMAN: Are you at all surprised at the depth of some of the desire of some families to do more good with their money? Is that something you expected or is it a little bit of a surprise to you?

JED EMERSON: On the family side, I can’t say it’s been a surprise. In my independent practice and the work that I’ve done in the field of impact investing, I actually sought out families early on. When they come into this conversation, they come with a broader understanding of value. They come with an understanding of the ultimate goal, not simply the instrument or the vehicle that they happen to be invested in right now. That opens up the possibility for a whole host of conversations and innovations. I would argue that what we see now as impact investing has developed as a function of private capital coming in and self-determine a different set of priorities.

As you know, before I joined Tiedemann, I had been independent for 22 years. To be part of an organization where you’re expected to show up and be part of a team is a bit of an adjustment. That said, I really love it. The people are very genuine and I’m really enjoying the process of being part of a team and a community and a culture, which is something I didn’t have on the outside.

Within that, the thing that is striking to me is the number of advisors who are saying, “I need to be able to offer my clients more. I need to be able to have a conversation about not simply how are we generating wealth, but why are we generating wealth? What’s the meaning of the money going forward? What is the client ultimately about?” They’re looking for ways to make sure that that their clients’ strategies are aligned with their goals and wishes and how they want to show up in the world.

In the field of impact investing, it’s popular to say we want to activate capital for impact. But I would say, actually, your capital has already been activated. If you’re in markets, if you’re placing bets on certain strategies, if you’re putting your money to work in the world, you’ve already activated it. So the issue really is, is your money showing up in the world in a way that you can be proud of and that is in alignment with your long-term goals and objectives?

JEFF GITTERMAN: Can you give us an idea of some of the ideas you’re working on?

JED EMERSON: Sure. We’re building on a track record of success in traditional impact investing. So, we have managers on our platform who have been active in affordable housing, in impact initiatives around fintech and in a whole host of things that have really brought value to the market as well as returns to investors. The opportunity that we have now is to build on that set of solutions to address current challenges. And so, what we’re exploring is a whole strategy around sustainable climate solutions. What does it look like to not just invest with consideration of how the climate crisis will affect our portfolio – like real estate in Miami—but really how do you invest in a solution set that will allow people to respond to these challenges? There are real opportunities in that, not only in terms what technology and AI and other approaches can bring as we start to respond to those issues, but other areas of activity in terms of more innovative business models.

We also are evolving a whole set of strategies related to inclusive innovation. I think we’re all very clear on the fact that innovation is impact. Innovation can create phenomenal impacts for communities and marketplaces. But the trick is, how do we make sure that the innovations that we’re bringing forward includes those who have been under-resourced historically and who have not been part of the mainstream markets traditionally? In some ways, the mainstream markets are aware of these actors and opportunities, but they misprice risk. They don’t understand how to take into consideration not just short-term historic financial analytics, but proactive, forward-looking analytics.

We’re looking for spaces where climate solutions and inclusive innovation come together. That’s really the future of where we are going to have discussions and ultimately where we will be deploying capital over time.

JEFF GITTERMAN: Traditional banks and marketplaces have a really horrible record for including diverse voices. Private markets are doing a much better job addressing that.

JED EMERSON: Yes, and with all that said, one can still find firms, funds, managers who today are managing $1 billion and are looking to go to $3 to $5 billion around a whole host of strategies in this area. The mainstream markets overlook opportunities that, in some ways, is right there. Their aperture is so focused on the funds and firms that they know, the ways of thinking and approaching and investing that they’re comfortable with, and things that have created real wealth over the last, let’s say, 50 years. But actually, that introduces new risk factors for the next 50 years, because it puts blinders on the investor’s mindset. We really need to take what Buddhists call a beginner’s mindset to the practice and be able to see opportunity that really is right there.

JEFF GITTERMAN: Could you define regenerative solutions for our audience? People are hearing the term a lot, but I don’t think people really understand what it means to think from that perspective versus a traditional capital markets perspective.

JED EMERSON: Sure. A traditional capital markets perspective is really fundamentally an extractive approach. It’s an approach that’s linear. It says that you come in. You see an opportunity. You invest. You harvest your returns, and you go somewhere else.

Regenerative says we’re all connected. It’s all circular, and we need to be investing in ways that lay the foundation for the next round of investments, the next set of value-creating opportunities. That’s really how we should be thinking, on a long-term, almost spiral basis. What we invest in today lays the foundation for success tomorrow. You can apply that to how we think about agriculture, how we think about education, how we think about housing, and how we think about technology and data management. It’s all related to thinking not in a linear way but in a more circular way.

JEFF GITTERMAN: You’ve address this in your last book.

JED EMERSON: Yes, my last book was called The Purpose of Capital. It’s available for free in digital form at The Purpose of Capital website. There also is a music video, which is probably one of the few music videos about capital, so I encourage you to pick both of those up.

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Watch the full interview here.

Jed The IMPACT

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