RBC’s Ron Homer on the ‘sweet spot’ for impact investing

Transcript:
[Liz Skinner] Welcome to ‘3 Questions’. This morning we have Ron Homer, Chief Investment Strategist at U.S. Impact Investing for RBC Global Asset Management. Thank you for joining us Ron.
[Ron Homer] Thank you for having me.
[LS] So tell me a little bit about what you are seeing there in terms of demand for impact investing opportunities.
[RH] So overall, I think impact investing has been growing for the last 4 to 5 years, particularly in Europe, and spreading to the U.S. and other parts of the world. Its being driven by both climate change, which affects the whole climate, but also by more focus on problems around the UN’s Sustainable Development Goals – poverty etc.
[LS] Ron, what do you see in terms of the need for impact investing in the black and under-served communities in the U.S?
[RH] Well there’s a tremendous need for that, if you look at the disparities in wealth creation, the disparities in home ownership, small business development, incomes, they’re very wide, and actually as a result of the pandemic, growing. The only way to eventually bring those disparities and reduce them is by figuring out ways to increase the net flow of capital into those communities, both in terms of making the communities more receptive to capital, but also for capital to understand the opportunities there are to help grow that portion of our society.
[LS] Ron, can you run us through an example of impact investing and exactly how it works for the investor?
[RH] Sure, so we believe that impact is the sweet spot for impact investing is when the social benefit, or the social impact of the investment actually contributes to a financial return that’s either average or above average. So the real sweet spot, a prime example would be a company that’s finding a cure for, or a therapeutic for coronavirus, or even a vaccination, that would be the highest level of impact. As it relates to the black community, we believe and we’ve shown over the last 25 years that mortgage loans that are properly underwritten to qualified buyers, of which there are many within black communities, help stabilize those communities, the home buyers actually perform better than the universal home buyers, because they are buying homes for shelter, home ownership is important, they have fewer alternatives. And so we’ve actually shown that mortgage backed securities targeted to low and moderate income residents and minorities out-perform mortgage backed securities to the broader population. So that’s a prime example for where almost everybody holds some type of these securities in the fixed-income strategy. And that’s an area where impact investing can actually add alpha to the portfolio.
[LS] Very good. Thank you so much for joining us Ron Homer.

See also

Yes, impact investing can be profitable – Research points to competitive returns for pursuing the social and environmental good.