Social Return Analysis: The Key to ESG

Our Approach to the Analysis of Social Return
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Social Return Analysis: A Multi-Disciplinary Approach to Impact Investing.

  • Social return analysis stands at the intersection of diligent research and skillful social return calculation. This complex domain of impact investing requires the effective coordination of data, consultants, and other resources. It involves directing a wide spectrum of researchers specializing in environmental, social, and governance (ESG) areas. These experts analyze potential investments — companies that span various issues, including ESG, corporate governance, and sustainability.
  • The successful execution of social return analysis hinges on developing and steering investment research and analysis processes to boost social and impact investing. Additionally, managing internal and external communication efforts is critical to amplifying awareness and comprehension of specific impact investing issues. This often calls for active participation in diverse groups, forums, and initiatives to articulate a specific impact investing philosophy and approach to investment research.
  • At present, the prevalent method employs ratings derived from social and financial information. Guided by specific areas of interest, we delineate impact conditions and opportunities. Our extensive experience equips us uniquely to detail social and investment risks, conduct rigorous impact investing financial analyses, and design unique investment structures. The following are examples of our social return analysis process.

    • Based on specific areas of interest, we outline impact conditions and opportunities. Our long term experience provides us with a unique ability to detail social and investment risk, to conduct impact investing financial analysis, and to create unique investment structures. Below are examples of our social return analysis process.

    Ratings derived from social and financial information

    Fully Adjusted Return Methodology
    In 1989, we created a rating system for women and minority-owned financial institutions, later extended to non-minority financial institutions, other industries, and entire economies. This approach yielded specialized insights and facilitated the identification and evaluation of impact investing market opportunities.
    Calculating Market Value of Environmental, Social and Governance factors
    On February 5, 2015, we stood before the Norwegian Ministry of Finance and warned, "As the market value of environmental, social, and governance (ESG) factors expands, the instances of fraudulent practices linked to these factors will inevitably rise. We foresee these unethical practices spanning from basic falsifications of ESG records to more intricate, yet equally fraudulent manipulations of ESG ratings." Our warning turned out to be prophetic. Just a few months later, on September 22, 2015, the automobile giant Volkswagen confessed that 'defeat devices' were used to dupe emissions tests. These devices were clandestinely installed in a staggering 11 million vehicles worldwide, exemplifying the grave risk we had forewarned. These actions not only undermine the trust of investors and consumers but also can have detrimental effects on our environment and society.
    Signaling System-wide Economic and Market Failure
    Back on December 22, 2003, our proprietary Fully Adjusted Return Methodology led us to a stark realization. The statistical models we had devised using this innovative approach began to indicate a disconcerting likelihood of systemic economic and market failure. These findings underscored the power and prescience of our unique methodology in forecasting pivotal market trends and risks.

    Coordinating Data, Consultants and other Resources

    SPI-Finance
    We had the privilege of collaborating on a project that brought together financial institutions from Australia, Germany, the Netherlands, South Africa, Switzerland, and the UK. The objective of this global initiative was to devise key performance indicators specific to the financial industry, with a special focus on social performance. The diversity of perspectives and experiences from these varied geographies enriched the process, driving us towards more comprehensive and globally relevant indicators.
    Linking ESG to the competitive position of the U.S. capital markets.
    On October 5, 2006, we presciently noted the impending rise of cryptocurrencies, stating, "Competitive advantage in terms of capital access is within the grasp of any nation possessing significant economic potential coupled with a rudimentary telecommunications infrastructure." Our foresight highlighted the transformative power of digital advancements, setting the stage for the digital currency revolution.
    Social Audit of Fannie Mae and Freddie Mac
    We previously recommended a comprehensive "Social Audit" for Government Sponsored Enterprises (GSEs) Fannie Mae and Freddie Mac. A Social Audit provides a robust review of an enterprise's performance in relation to its social objectives, while also scrutinizing ethical practices within the organization. Had this rigorous assessment been conducted on these GSEs, we believe that the operational flaws and ethical lapses that eventually led to their downfall would have been identified much earlier, possibly averting their eventual failure.

    External Communications

    Testimony on Fannie Mae and Freddie Mac Before the US Congress
    TESTIMONY BY WILLIAM MICHAEL CUNNINGHAM Before the HOUSE BANKING SUBCOMMITTEE ON CAPITAL MARKETS, SECURITIES AND GOVERNMENT SPONSORED ENTERPRISES. FOR RELEASE June 15, 2000 10am.
    Testimony on the New Markets Tax Credit Program Before the US Congress
    Hearing Of The Select Revenue Measures Subcommittee Of The House Ways And Means Committee - The New Markets Tax Credit Program. Click here for the full hearing record. By: Richard Neal Ron Paul Mel Watt Pat Tiberi. Date: June 18, 2009. Location: Washington, DC. Chaired By: Rep. Richard Neal.
    SEC v. Citigroup
    Filed Amicus Briefs at both the lower and at the Appeals Court level in this case concerning corporate financial malfeasance in the years leading up to the financial crisis. Accurately predicted that Citigroup would fail to protect the public interest.
    National Association of Fixed Annuities (NAFA) vs. the Department of Labor.p
    The case, 16-cv-1035 in the U.S. District Court for the District of Columbia, challenges the ability of the Department of Labor to "raise investment advice standards" as they apply to retirement accounts. Resulted in a lowering of social return.
    Mozilla Corporation vs. the Federal Communications Commission.
    Filed in the U.S. Court of Appeals for the District of Columbia Circuit. The case, 18-cv-1051, challenges the Federal Communications Commission's reclassification of "broadband Internet access service as an 'information service,' and mobile broadband Internet access service as a 'private mobile service,'" and, therefore not subject to public interest rules and regulations. Calculated negative social return impact.

    High Social Return Products

    Anti Predatory Lending Investment Vehicle
    Created the first wide scale home mortgage loan modification projects in the United States. The Minneapolis-based project sought to help 50 families victimized by predatory lending practices. See article, Property Flipping Remediation Yields Investment-grade Security.
    Diversity Investing
    We created a new style of investing called Diversity Investing. Stocks of the largest companies in the U.S. are included in the model fund. These companies have been selected because they have outstanding investment characteristics and are top performers with respect to four key measures of diversity and inclusiveness..
    Targeted Mortgage Backed Security
    First targeted Mortgage-backed Security (MBS) investment CRA securitization, an MBS pool backed by loans from minority financial institutions.