Ethan Powell and Jill O'Donovan on Impact Investing: ETFs for Social Justice and Empowerment

Transcript

Our guest this week is Ethan Powell and Jill O’Donovan

- Discover how investing can become a catalyst for social change and generate a ripple effect of empowerment for women and minorities. Join us as Ethan Powell of Impact Shares and Jill O'Donovan from the YWCA unveil the transformative power of ETFs designed with a conscience. In a groundbreaking conversation, Ethan illustrates the synergetic force of advocacy organizations and impact investing, while Jill shares her firsthand experience on how such financial tools help propel the YWCA's mission forward. This is a session where finance meets activism, and where every investment dollar works towards a more equitable society.

- Embark on a journey through the evolving landscape of ESG investing, where the future holds promise for gender and minority equality, not just in ideals but in investment portfolios. We're tackling the complex narrative of how net advisory fees fuel education on women's empowerment in the corporate world and preview a pioneering catastrophic bond fund aimed at understanding the economic shocks of climate change. With the expertise of our guests and the partnership with Tidal, we're charting a course for the expansion of social justice. Prepare to be inspired by a vision of investing that goes beyond profit.

Read the Full Transcript below:

00:00:26:09 - 00:00:46:20

Cinthia Murphy

Welcome to Wavemakers I am Cinthia Murphy, head of research for the ETF think tank.

And today we are going to be talking about impact investing. Joining me are two great folks in this space. Ethan Powell was founder of Impact Shares and Jill O'Donovan, who is an impact consultant for the YWCA. Welcome to the show.

00:00:47:17 - 00:00:48:10

Ethan Powell

Thanks for having us.

00:00:49:05 - 00:00:49:14

Jill O’Donovan

Thank you.

00:00:50:06 - 00:01:11:05

Cinthia Murphy

Ethan, let's start with you went and, you know, set the stage a little bit about who is impact shares. It's a company that is not new to the space. You you've been around for a few years and building that that traction and the story for impact investing. So those are how impact shares came to be and the story of the firm.

00:01:11:19 - 00:01:46:08

Ethan Powell

Sure. Sure. So Impact Shares was founded in 2015. We are a SEC Registered Investment Advisor, but we're also a 523 nonprofit. And the idea behind Impact shares was ESG is offered by traditional asset managers, lack both credibility and easily communicated social and environmental outcomes and so our platform is designed to bring social and environmental advocacy firms into the capital markets where we help them articulate their goals and aspirations for the private sector.

00:01:46:13 - 00:02:24:00

Ethan Powell

We cook them into our series of social screens. We identify the leaders in each of the social or environmental sectors that they are experts in. So you can kind of think of it like sector spiders from State Street for social sectors, right? Where the sort of sub advisor, if you will, which is our impact partner, is a leader in that specific social sector and they help to craft a solution for us that really maximizes what we call social alpha, which is superior social outcomes relative to the issues that you specifically care about.

00:02:24:17 - 00:02:59:19

Ethan Powell

And we have our two equity funds, one, dealing with minority empowerment that is in partnership with the NAACP. And then the other dealing with women's empowerment that is in collaboration with the YWCA, which is where Jill is from. And that's the idea is, is create more meaningful, more easily communicated strategies that investors then can use to build bespoke ESG portfolio, those that reflect their own personal idea of what ESG is with their own personal, social, environmental priorities.

00:03:00:17 - 00:03:21:15

Cinthia Murphy

So what I what I've always loved about the concept here is, you know, for all of the amount of time we spend talking about the problem with ESG as a category, is this like really broad umbrella that has been used and abused by providers everywhere, giving all sorts of flavors that aren't really impactful to to really for hone in on that word.

00:03:21:15 - 00:03:44:19

Cinthia Murphy

So I love the concept of this is about impact as direct as it gets. And I want to go to Joe a little bit for that. But before I go, I wanted to ask why Gordon Nonprofit RO Why was that an important piece of this business strategy? Was it to add credibility to the effort? Was there to just because to increase the impact?

00:03:44:19 - 00:03:46:10

Cinthia Murphy

You know, can you tell us a little bit about that?

00:03:47:02 - 00:04:19:00

Ethan Powell

A little bit of both, right. I mean, if you think about these advocacy organizations, they don't generally trust or partner with private sector leaders, and they understand the 523 structure. They understand what it takes to be considered one, and it builds in a certain amount of trust. And hey, there, they're one of us looking after us. Actually, the head of UNICEF, Harold Stern, put it best, which was I love the idea.

00:04:19:00 - 00:04:42:10

Ethan Powell

I want to do a sort of child oriented solution, but I don't know the space. And I fear I'm going to wake up in five years. And you would have made a bunch of money off of our brand at our sort of intellectual property and not really benefiting the yeah. The constituents that the organization has set out to benefit.

00:04:44:01 - 00:05:06:03

Cinthia Murphy

So Jill, let's talk a little bit about the concept of, you know, an investment vehicle as a vector into creating impact for an organization like the YWCA. How did you get involved with Impact shares? How did that connection happen and why did it make sense for the organization? Yeah, and well.

00:05:06:12 - 00:05:37:22

Jill O’Donovan

You know, it's nonprofits are always looking for ways to diversify revenue. And unrestricted revenue is key to any to the success of any of the nonprofits to be able to innovate and come up with new ways to solve the solutions or the problems that we've been dealing with for years. And in this case, you know, that was one thing we were specifically looking for was a way to advance our mission and at the same time potentially generate revenue back to the YWCA.

00:05:38:13 - 00:06:04:03

Jill O’Donovan

When we first came across this opportunity, you know, it sounded too good to be true. Ethan was looking for a women's empowerment partner to launch an ETF that focused on companies that did best in their sector on various women's empowerment criteria. And we, as the YWCA having 160 years experience on eliminating racism and empowering women, thought that we would be a good partner for that.

00:06:05:00 - 00:06:28:12

Jill O’Donovan

And so we you know, when we saw the criteria, these were all things that we've been advocating for, for years on women in senior leadership positions, women on boards and women in senior management, parental leave, and paid time off sexual harassment policies. And we've been marching in the street trying to get people to understand these issues for years.

00:06:28:17 - 00:06:35:05

Jill O’Donovan

And this was a way to have that bridge, that connection to corporate America and more directly.

00:06:35:05 - 00:06:55:14

Cinthia Murphy

How did this the criterias get built? Maybe that's more for you, Ethan. How do you actually put impact to gender impacts in this case and or minority impact in the case of the NAACP on two data points on a piece of paper and create an investment strategy out of that. What was that exercise like?

00:06:56:04 - 00:07:23:06

Ethan Powell

It each takes a sort of life of its own. In the case of the ACP, they already had corporate reporting scorecards where they selected, I think it was four companies from four sectors, and they were the largest companies and created surveys that they conducted with investor relations and other sort of senior people in those organizations. And they did that, I think, once a decade, right?

00:07:23:06 - 00:07:58:14

Ethan Powell

So it really wasn't that scalable or actionable. Right. And so what we did is we took those scorecards as a starting point and worked with Sustainalytics to try and translate as much of those surveys into publicly reported data from, you know, publicly traded companies here in the United States. And then, you know, and then for us, it really becomes their sort of common language to effectively engage with senior leadership in a in a more productive fashion.

00:07:58:14 - 00:08:18:16

Ethan Powell

Right. Because if you think of the NAACP, for example, they're, you know, very much a historically a litigation oriented activist firm with lots of attorneys. And when they called senior leadership at a company, they were afraid. Right. Because they were worried about being sued, you know. And so that's kind of the stick. And for us, the ETF really represents.

00:08:19:00 - 00:09:00:10

Ethan Powell

Okay, well, here are the 200 companies that are doing the most to advance the cause. And, you know, it's really a carrot, right? We're trying to create a horse race with private sector leaders who want to be recognized as a company whose ethos empowers women or minorities. So that's the NAACP. In the case of woman, we partnered with Equality, which is a Dutch based gender research firm and worked with them and the YWCA to sort of craft what we thought was an appropriate representation of the YWCA.

00:09:00:10 - 00:09:10:06

Ethan Powell

These goals and aspirations for the private sector and you know, they're a great partner of ours and they continue to do a lot of tremendous research. And the space.

00:09:11:13 - 00:09:42:06

Cinthia Murphy

That. Jill, how have the conversations been when you're out there? I know you're an impact consultant. You've been very, very closely connected to this to this family of products, and especially women, the women empowerment ETF from day one. What are those conversations like bridging that social awareness and desire for impact with the investing world? And from that to Ethan, I'd love to talk about why an ETF in the first place.

00:09:42:06 - 00:09:52:07

Cinthia Murphy

Why does an ETF wrapper make sense as a connecting bridge between impact in an investment portfolio?

00:09:52:07 - 00:10:12:05

Jill O’Donovan

But one of the things I find most interesting is you spend a lot of time educating people on what the YWCA and who the YWCA is that we're not the YMCA, they're two separate organizations, that our mission is to empower women and eliminate racism. And that, you know, this is work that we've been doing for a lot of years.

00:10:12:19 - 00:10:37:16

Jill O’Donovan

So, you know, the one thing that right out of the box, one of the strongest benefits of of partnering with impact shares for this for this product has been just having YWCA is name affiliated you know and having a broader audience using this more as a megaphone to sort of get that get that message out, I believe sorry, having the name affiliated with women's empowerment and in the title of the product.

00:10:38:01 - 00:11:05:23

Jill O’Donovan

And so that's you know, that's been very eye opening for me having worked with or I worked at the YWCA here in Chicago for years, it it was surprising to me that more on a national level, there wasn't sort of that that name recognition or there was still that name confusion with the YMCA. But secondly, I think it's it's really given us a new avenue to discuss our work, a new audience to discuss our work.

00:11:06:12 - 00:11:34:11

Jill O’Donovan

And, you know, through that, those both in the impact investing world, but then also employees of the companies that end up in the in the fund every year or two representatives of those companies and to really talk about the work side to really talk about the work that we've been doing and how the things that we use to evaluate the companies, the different criteria that are used can actually have that beneficial effect on women in the war in the workplace.

00:11:35:03 - 00:12:02:15

Jill O’Donovan

So that's been that's been great. And like I said, we've we've attracted new eyes to the YWCA, new donors, new supporters, and then just the YWCA is an investment in this in this product has been has been great. And so all the way around, I think it's been very impactful. It's put us in touch with other organizations that are doing the work that we've been doing for years.

00:12:02:16 - 00:12:29:03

Jill O’Donovan

And we're part of the 30% coalition that we work with, 30% ocean to get more women on boards. And we have participated in shareholder resolutions. The most successful last year was with Norfolk Southern to get additional paid sick leave for their workers. And we have consulted with groups like the Institute for Diversity and Finance on various initiatives that they've had.

00:12:29:11 - 00:12:44:18

Jill O’Donovan

And we've been signatory to a lot of different shareholder proposals as well. So all the way around, it's it's given us a new platform to discuss our work and to advance the work that we've been doing for years.

00:12:45:09 - 00:13:14:05

Cinthia Murphy

Yeah, I love that it's, it's impact actually having an impact that it's delivering on and on the goal. So Ethan, on that vein, I'm just curious about the decision to to go with an ETF in the first place. I mean, I think the first one came out about five years ago. Were you in ETFs before? Why why did the wrapper appeal to you as as the place to, to deliver this value proposition.

00:13:15:09 - 00:13:40:20

Ethan Powell

Yeah. I've been in the 40 Act registered fund space for almost two decades, so, you know, I was including ETFs. And if you think about impact investing historically, people think of it as, you know, private funds that have concessionary returns where you're buying a, you know, an old paint manufacturing plant and turning it into an artist commune or something, right?

00:13:40:20 - 00:14:13:08

Ethan Powell

Well, a that's really not that accessible. B, not many people have an allocation that that can afford a concessionary return profile. So if you think about what's great about the ETF wrapper as it really is, it took a mechanism to democratize investment advice. And for us, yeah, that's meaningful because it allows people to build more bespoke ESG portfolios with relatively small portfolios and and be much more intentional with the impact.

00:14:13:21 - 00:14:39:09

Ethan Powell

And for us, with this whole ESG debate on is something ESG or is it not every dollar consumed every dollar invested impacts the world around you and for us, it's really about providing tools that allows everyone, not just the very wealthy, to be more intentional with that impact. And then have the right people process and philosophy in place to actually achieve that social output.

00:14:40:07 - 00:15:06:15

Ethan Powell

Yeah, if you think of of traditional asset managers, their disproportion innately people like me middle aged white guys and you know while we may be good at certain financial aspects, you know, we have tremendous advocacy organizations that are full of individuals that have been, you know, steeped in activist or activist activity for their entire career and bringing them into the fold.

00:15:06:15 - 00:15:31:15

Ethan Powell

Much like you do, a sub advisor as a specialist was our goal. So we think we've got better people process and philosophy to achieve the social alpha that we're setting out to achieve. And we think that ETFs really it's the wrapper of the future and democratize as is investment advice broadly, but we think is a great vehicle to democratize access to more credible impact strategies.

00:15:32:16 - 00:15:59:15

Cinthia Murphy

So I had to ask as I mean, we I know we've talked about this many times before, but it is not easy to be in the ETF business. It takes patience, grit and commitment and growth can be hard even when the idea is great. So when you look back from day one to today, are there any any big lessons you take from this experience as the founder of an ETF provider?

00:16:00:06 - 00:16:13:00

Cinthia Murphy

Anything that surprised you on either how easy or hard it's been or where the opportunity is or the engagement? What stands out to you as a lesson to anybody looking to enter this space?

00:16:13:00 - 00:16:55:07

Ethan Powell

Well, I would say our industry's reluctance to embrace new concepts and new players right. I think that in some instances, if, you know, we as investment professionals are ceding investment and securities selection to social advocacy organization, it starts to marginalize our contribution to our our clients portfolio. And so I think there's a very intermeeting dated system of financial advice, not all of whom are really embracing their obligation to help their clients navigate that social environmental impact as they see fit.

00:16:56:03 - 00:17:44:08

Ethan Powell

So that was somewhat surprising, you know, risk aversion to just new concepts. You know, us being a 523 nonprofit is new and our funding sources and primarily the Rockefeller Foundation through their innovative finance program is who funded us. And to your point, ETF, you know, on a creation operation distribution's very expensive and we had a great partner. We have what we think is even a better position partner now with Title in part because you understand the market and you not only can operate the funds more effectively, there's actually a realistic path to distribution and growth.

00:17:44:16 - 00:18:07:00

Ethan Powell

That's something other than the YWCA and us. It impact shares, you know, advocating sort of in isolation. So being part of a larger organization with more assets, more people, more of a sort of recognizable brand, I think ultimately will really help these funds create the type of impact they're designed to create.

00:18:07:19 - 00:18:34:10

Cinthia Murphy

Yeah, it's it's surprising sometimes how such a global team, you know, that has global impact, the concept of, you know, gender and minority and just equality in general can feel so grassroots sometimes, so every one little action at a time. But Jill, I would love to just pick your brain a little bit about where do you see opportunity from year?

00:18:34:10 - 00:18:59:13

Cinthia Murphy

Where do you see maybe the conversation misses the point or what gets, you know, we can do some myth busting, if you will, about is there such a thing as a woman factor in a minority factor or is this just about the cause that, you know, you may or may not be passionate about? What's the opportunity in this space?

00:18:59:13 - 00:19:00:12

Cinthia Murphy

I mean, I think that.

00:19:00:20 - 00:19:28:18

Jill O’Donovan

You know, so far the investing hypothesis is and it played out the way we hoped it would, which is, you know, these are these companies that the ETF holds are, you know, score high and highest in their sector on these various women's empowerment criteria and the fund test, listen very well. So I think it's, you know, it kind of shows that at least on some level, doing these things, if companies do these things, you know, they will be successful companies.

00:19:28:18 - 00:19:54:07

Jill O’Donovan

And, you know, we've been trying to get that point across for many, many years. You know, if you invite more women into leadership positions, you have more diverse thought. You has, you know, more and more ability to solve and more thought process around solving problems. If you provide parental leave and flexible time and paid time off, you know, you have a happier workforce just in general.

00:19:54:20 - 00:20:17:09

Jill O’Donovan

If you're transparent on your on all of these issues, I think overall you have happier employees and happier employees stay, you have less turnover and you know, that benefits companies. And we've been having a lot of conversations over the years since we launched with different companies about the criteria, both those that are in the index and those that aren't.

00:20:17:09 - 00:20:40:14

Jill O’Donovan

And just on each of these each of these different points and offering, you know, our advice and solutions to help companies that want to improve in these areas. So that's been great. You know, one of the things we haven't mentioned yet is sort of how the why do we see another route to benefit to the YWCA here, which is that Ethan has an impact.

00:20:40:14 - 00:21:03:04

Jill O’Donovan

Shares will donate the net advisory fees back to the impact partner. And so in this case, it worked at the YWCA is doing to, you know, help educate companies on this criteria and be funded through that that donation. So we see, you know, this is a very long term, you know, we didn't create these problems overnight. They're not going to be solved overnight.

00:21:03:18 - 00:21:12:06

Jill O’Donovan

But this is just one additional tool in the toolkit of solving some of the issues that are disempowering to women in the workplace.

00:21:13:18 - 00:21:39:09

Cinthia Murphy

Ethan, Will, we'll close with you on a little bit of your outlook for, I guess, ESG investing slash impacting. I actually have thought a lot about how we've internally talked a lot about impact to being the next iteration of ESG. I think folks understand sustainability. They understand impacts in a way that's much more meaningful than just a broad ESG category.

00:21:39:17 - 00:22:02:05

Cinthia Murphy

So how does impacting shares see the the next evolution of this kind of aware, you know, put your money where your mouth is, type of investment approach and anything that we can expect from impact shares in the future is the family of ETF is going to grow is what's ahead for the business.

00:22:02:22 - 00:22:31:18

Ethan Powell

Yeah. And you know, I think broadly speaking for impact investing, I do think that it's somewhat hindered by the Department of Labor being sort of the organization of record that defines what a fiduciary is. And, you know, the Department of Labor basically changes hands every four years. And depending on who's in the office, you may get a very different interpretation.

00:22:32:00 - 00:23:01:02

Ethan Powell

And so four years is a very short investment time horizon. So what that results in is most people that are guided by the aggressive definition of fiduciary don't allocate to ESG because they're afraid of the interpretation changing every four years because that's a 30 year allocation in their mind. Right. So I think for broader based adoption of ESG principles, we're going to need something more statutory sort of codifying ESG role in a portfolio from Congress.

00:23:02:21 - 00:23:26:01

Ethan Powell

And then, you know, I think we'll start to look a lot more like the European sort of ESG environment, where everything's just cooked into every allocation that they make. Right. You know, as it relates to new strategies, you know, we've had a couple of funds with the United Nations in the past dealing with climate change. We've got a fund on file now that we're really excited about.

00:23:26:01 - 00:23:51:20

Ethan Powell

It's a catastrophic bond fund. And the quick background on catastrophic bonds is they're issued by insurers and reinsurers or specific perils in specific geographies. So, you know, you can have a hurricane bond in Jamaica. Well, we think that's really instructive on the true cost of doing business and the true cost of holding hard assets in specific geographies relative to specific perils.

00:23:52:02 - 00:24:39:18

Ethan Powell

So California fire, bond, all of a sudden, you know, the spread gaps out because you know, the they anticipate having significantly more property casualty issues relative to fire in California. So for us, tracking that sort of trend I think does a better job of illustrating the true cost of increased global climate volatility. So we believe that this ETF will end up being sort of a barometer for that cost and not trying to solve it necessarily, but providing more capital so that our capital markets can better backstop that risk and better articulate how much that risk actually is costing us as a society and just, you know, foster dialog worth.

00:24:39:20 - 00:24:50:12

Ethan Powell

And so we're really excited about that. We're excited to grow our woman on and our empowerment fund and we're excited for our partnership with Tidal to help facilitate.

00:24:50:12 - 00:25:18:18

Cinthia Murphy

Oh yeah, I know. This is great. It's it's exciting to to see impact really making a difference and you know the products innovation in the space is fascinating and so I wanted to thank you both for joining us today. Thanks for for telling the story, Jill. Thanks for coming and showing us how far organization like YWCA is is making a difference and, you know, invested in ETF.

00:25:19:07 - 00:25:26:12

Cinthia Murphy

And Ethan, congrats on the firm and thanks everybody for joining us. We will see you next time.