How Madeira Global’s Advanced Analytics are Helping Impact Investors Make the Impact They’re Looking For

Joel Anderson  |

Impact investing is fast becoming an essential piece of planning for almost any portfolio. Increasingly, fund managers are starting to understand that sustainability is more than just good stewardship, it’s an essential risk factor that has to be factored into the construction of any portfolio.

However, with this shift comes a new set of criteria to include in any investment thesis. In order to truly understand impact investing, it becomes essential to measure both the impact as well as the investment. Investing has a whole series of specific, quantifiable data that’s been used for decades to gauge their potential beforehand and their quality afterwards. However, when it comes to something like environmental impact, measurable factors aren’t necessarily as clear as traditional metrics for earnings or returns.

That’s why Christina Alfonso, CEO of Madeira Global, a leading advisory and analytics firm, has committed herself to helping her clients get the data they need to make better decisions about how to best deploy their resources to maximize the impact that they can make.

“Any time that you make an investment, that is not a neutral position,” says Alfonso. “You are supporting something. There are going to be positive and negative consequences of that business model and it's important for you to understand it if you’re going to make a decision that is best for you.”

For a new generation of investors, confronting these questions is an essential piece of building a portfolio for the future, and firms like Madeira Global are a key piece of making the most informed decisions possible.

Enabling People to Make Better Decisions

Founded by Alfonso and Alexandra Cart in 2012, Madeira Global is focused on the analytics underpinning the key decisions that are now driving everyone from family offices to pension funds around the world. For Madeira, that has meant building a system for comparing vast data sets in a way that can result in the capacity for meaningful comparisons across different sectors, industries, and national borders.

“I think that is sort of one of the things that distinguishes our framework,” says Alfonso. “There are certainly a lot of ways to measure qualitative data, so what I think makes us unique is that our ESG framework allows us to create an assessment tool in our reports that is industry, geography, and growth-stage agnostic. We could run our report on an early-stage energy company in Brazil just as easily as we could do a real estate development firm in New York City. The idea is that you take in uniform data points in environmental, social, and governmental impact and find ways to compare them.”

The key consideration here is enabling people to make better decisions. As Alfonso points out, it’s not as though the decisions are anything new. What is new is putting a new focus on making those decisions with the most detailed possible understanding of their consequence.

“Every day, we all make decisions,” says Alfonso. “We’re constantly making compromises about quality and quantity. Am I going to go to the local neighborhood mom-and-pop coffee shop or am I going to go to Starbucks (SBUX)? Am I going to buy this cheaper shirt because I’m on the run and need to have it now, or do I care about getting one that is American made, even if it's more expensive? We are already making these decisions. The only difference is that our reports are seeking to make the data upon which you're making those decisions clearer so that you can make a more informed one.”

Connecting Investors with What’s Most Impactful to Them

For Alfonso, it’s important to remember that there’s no universal framework for what you choose to do with the data. Making an informed decision doesn’t mean making one that doesn’t include using your personal judgement. Even when you have clear data at your disposal, there’s still a subjective, qualitative element at play.

“My thinking related to sustainable investing or impact investing has evolved quite a bit,” says Alfonso. “I don’t see what we do as helping people make more impactful decisions, because the definition of what is impactful to you is different from what is impactful to someone else.”

“That is really what we're trying to help people do, and I think that is really important,” she continues. “We are taking in really broad data sets, and our job is to help synthesize it down to what we think is the most relevant information to make a decision. If, God forbid, you have a family member that is in a battle with cancer, you are going to have interests specifically tied to cancer research that other people may not emphasize as much.”

For Alfonso and Madeira Global, the goal is to empower firms to make the decisions that best fit their impact profile. With better data and advanced analytics, those firms can still guide the direction their investing takes while still ensuring that they can make the most impact possible.

Growing Diversification in Impact Investing

It’s easy, though, for the retail investor to feel a little lost in engaging with this process. Madeira Global deals primarily in private holdings, with their clientele tending towards those with large holdings. For a lot of investors, impact investing can feel like something where we’re on the outside looking in, with family offices and specialized funds leading the charge. However, that’s quickly changing, as mainstream funds are starting to make up more and more of the largest participants in the impact investing movement.

“I’ve definitely had close proximity to family offices, so I can definitely say that in my experience they have led the charge, but I would definitely not say that they are the leaders today,” says Alfonso. “In fact, JP Morgan (JPM) and The Global Impact Investment Network (GIIN) produced a couple of reports in collaboration, and last year, they updated their report to include a really sexy pie chart that gives the breakdown of who is involved in impact investing. The family offices are a very small sliver today compared to pension funds and insurance companies. Prudential (PRU) made an announcement a couple of years ago committing $5 billion of their assets balance sheet to investments that specifically had a social return objective. So I think you're starting to see a broader adoption. We could talk about what motivates them, but by and large you're seeing a lot more diversification in who is getting involved in this space.”

That shift towards adoption by more main-stream, traditional actors in the finance world is one that’s likely going to mean that individual investors are likely to begin to see more options. However, there’s still a long way to go before the sort of advanced analytics incorporated by Madeira Global can truly begin to penetrate the world of traditional investment funds.

“Last year, I had a chance to speak at the global indexing and ETF conference,” says Alfonso. “The audience was entirely pension funds. They are challenged with having to place multiple billions in the market with this lens of social responsibility. Obviously, they have liquidity requirements, so they're really only looking at equities, and a lot of these public companies are not really providing the level of transparency required for them to even make those decisions. They don’t even have the data points to be able to say yes, this company meets the criteria for negative screening or social responsibility. That’s a huge challenge that they have.”

A Challenge That’s Well Worth Taking On

However, for Alfonso and Madeira, that challenge of bringing informed, data-driven decision making to all sides of the financial equation is one that’s necessary to creating a business world that can last into the future.

“It's important to align stakeholder interests,” Alfonso continues. “It’s not about making a buck for the next quarter but about the intermediate and long term sustainability of businesses in the private and in the public equities market.”

The challenges contained there are tremendous, forcing Madeira to juggle thousands of different data points in an effort to generate meaningful analysis. For Alfonso, though, it’s a challenge to be embraced.

“I didn’t say it was easy,” says Alfonso.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer.

Companies

Symbol Name Price Change % Volume
SBUX Starbucks Corporation 84.38 0.44 0.52 5,287,433 Trade
PRU Prudential Financial Inc. 92.81 0.02 0.02 1,631,459 Trade
JPM JP Morgan Chase & Co. 128.60 0.12 0.09 8,483,725 Trade

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