Democratization of Social Investing

By Charlie Goodwin, Managing Director, Head of Public Finance
Sep 13, 2017 8:15 AM ET
Blog

Traditionally social investing was limited to creating products and deals for asset owners who have control over very large buckets of assets, sometimes in the billions and to build scale by replicating those deals for similar investors.

I believe we’re overlooking the value of democratizing social investing – building scale by going small which could create access for the ‘every-day investor’. Someday we could see a large number of smaller-dollar investors tapping a massive pool of capital for greater variety of projects that deliver quantifiable and meaningful impact in society.

I sit within BNY Mellon Capital Markets, LLC1 and in my 25 years in the business, it has become apparent to me through discussions with clients, internal teams and our own market research that the next few years present tremendous opportunity in this space. Whether it’s through imaginative combinations of existing capabilities or creative issuances that better connect sales and trading to data analytics, settlement and servicing, the ‘social investor’ often has unique motivation and needs – and is looking to financial sector experts for innovative solutions.

To date, I have seen two main areas of opportunity for us within social investing. On the issuance side, BNY Mellon Capital Markets is already participating as a managing underwriter and BNY Mellon as a bond trustee on new issue municipal Green Bond deals for clients such as the New York MTA.

Until recently, the conventional wisdom was that investors wouldn’t pay a premium for green bonds but we see anecdotal evidence that increasingly green bonds lower the cost of capital. On the investor side, the origination of investments that feature a financial and social return is also gaining traction among large institutional investors and those investors are turning to us to assist them in evaluating both the financial and social return. This demand from investors and issuers motivated my participation in the Global Impact Investing Network (GIIN) Guarantees Working Group to assist in developing a blueprint of best practices for guarantee-backed deals that could increase the scale of U.S. community impact investing.  

As we respond to clients’ ESG interest within BNY Mellon Capital Markets, we also see power in democratizing access to social investing solutions so individual investors are able to take advantage of the same products and services that major institutional and philanthropic investors can today. This will require the market to accurately quantify the social and environmental impact of any size of investment for any type of investor. The challenge is in distilling vast amounts of data into the indices, ratings and benchmarks that will make it possible for new groups of investors to make informed social investing decisions. I look forward to continuing to be a part of this journey at BNY Mellon.

1 BNY Mellon Capital Markets, LLC (“BNY Mellon Capital Markets”) is a full service registered broker-dealer, member FINRA and SIPC, and an indirect wholly owned non-bank subsidiary of The Bank of New York Mellon Corporation (“BNY Mellon”).