Investors continue to seek thematic alignment of portfolios to specific issues of importance to them. 2023 marked the rise of an innovative impact investment focus: Child-lens Investing (CLI). The framework was outlined by UNICEF, the international non-profit organization dedicated to “accelerating solutions to build a better world with and for children.”1 CLI is “an approach to sustainable investing in which investors intentionally consider child-related factors to advance positive child outcomes while minimizing child harm.”2 The idea is that portfolios can be constructed with child-related considerations at the center of the investment process while still prioritizing earning a financial return. The framework proposes that investing in children today is necessary for sustained economic growth in the future – making the approach not just an ethical imperative but also a smart business decision. Furthermore, CLI is in line with achieving the United Nations Sustainable Development Goals (SDGs) across a variety of themes, including education, healthcare, reducing inequalities, and climate action.
Children are perhaps the most vulnerable contingent of the world’s population. They are entirely dependent on adults to support and protect them financially, emotionally, and physically and they have very little decision-making power. Globally, over 1.2 billion children are living in poverty.3
CLI is essentially acknowledging that all investor actions have an impact on children and seeking purposeful alignment with investing in the next generation. This emergent investment approach overlaps with other frameworks as well. For example, it has been shown that investments in high quality childcare can narrow the gender wage gap and benefit the overall economy by increasing women’s labor force participation, thereby increasing U.S. gross domestic product (GDP).5 Investments in quality education help prepare children for academic and professional success in the future. Studies have shown that children with better childcare and educational opportunities grow up to be healthier and are more likely to be gainfully employed. These workers then earn higher wages thus paying more taxes and reducing the need to depend on government support.6
As we delve into some of the impact themes investors prioritized this year, we want to keep the concept of CLI top of mind. Understanding the interconnectedness of investing in the next generation with gender equity, racial equity, economic development, and more is paramount.
Inflation was top of mind for investors in 2023, a concern that loomed large amidst a backdrop of uncertainty. While the Federal Reserve’s rate hiking agenda reduced inflation and created heightened demand for cash investments, bonds staged a comeback in the fourth quarter and delivered solid returns for the year. With yields at levels not seen in decades, market conditions created a myriad of opportunities for fixed income investors. Not standing on the sidelines, impact investors were highly engaged, seeking to obtain both competitive financial returns and positive social and/or environmental impacts with their assets. Some of the themes that our team prioritized this year included:
Gender lens investing
At its core, gender-lens investing (GLI) involves investing with a focus on gender-related data, analysis, and consequences, aiming to identify both risks and opportunities to advance gender equality. Women’s empowerment is a pre-condition for social, political, and economic progress, yet even in 2023 there is work to be done to identify and eliminate the many gender disparities that still exist. These disparities have come into even sharper focus since 2020, when the COVID-19 pandemic magnified the existing inequalities in our society that women continue to face. Such discriminations include a sizeable pay gap, the proverbial corporate glass ceiling, sexual and domestic assault, and broad-based gender discrimination that can limit women’s rights to own property and obtain financial assistance.
More individuals are recognizing that the pursuit of gender equality can be a force for economic strength and social betterment over the long run. According to a World Bank report published this year, global GDP could increase by 20% or more by closing the gender gap in employment and entrepreneurship.7 However, this same report also revealed that the gender gap in the global workplace is much wider than previously thought. Earlier studies indicated that approximately 75% of women shared the same legal rights as men; however, the World Bank report found that number to be closer to 66%, or two-thirds of women globally. Furthermore, when analyzing how economies performed in the areas of Safety and Childcare, most scored extremely poorly, meaning that women lack sufficient protections and supports to warrant them entering the workplace. These results highlight the importance of achieving gender equality, and why it is so necessary for women to have the policies in place to enable them to achieve economic and financial success.
Hand-in-hand with gender-lens investing is child-lens investing (CLI), which was also a key theme for us in 2023. In recognition of the fact that children are our future, supporting them through investments in the fields of childcare, education, housing, and healthcare has long been a focus of our team. As we evaluate potential investments with an eye towards how they would impact the lives of women and children, our team can make progress toward gender equality to help ensure that the next generation has all that they need to thrive.
7 https://openknowledge.worldbank.org/
Investments supporting women and children
Investments supporting child-lens investing:
Small business
50%
of small businesses in the portfolios provide childcare, education, and specialty health care for childrenEducation
100%
of investments are for early childhood and K-12 educationSupporting women entrepreneurship
*RBC U.S. Impact Bond Strategy
**Frequently Asked Questions About Small Business, 2021, Small Business Administration
Gender lens profile of our strategies
Homeownership
53%
of borrowers are femaleMulti-family housing
72%
of households are female-headedOverall gender lens
53%
of portfolios are supporting womenNumber of investments in impact supporting UN SDG's
1,503
7
208
71
319
87
Indigenous people
According to the World Bank, Indigenous Peoples (IP) are “distinct social and cultural groups that share collective ancestral ties to the lands and natural resources where they live, occupy or from which they have been displaced.”8 Within the United States, the largest population of Indigenous Peoples are the American Indian and Alaska Native peoples (US Indigenous Peoples or US IP). According to the 2018 census report, there are approximately 10 million IP in the United States, many of whom face the same social and economic hardship. In addition to often being met with discrimination and prejudice, many continue to face adversities including shorter life expectancy, higher suicide rates, an increased likelihood of experiencing a violent crime, higher than average poverty rates, and lower than average levels of education.
Despite legislation prohibiting discrimination based on race, color, religion, national origin or sex, millions of Americans are treated unfairly due to any of these factors. To reduce the disparities between US IP and other populations, additional supports from institutional service providers such as government agencies, social workers, medical professionals, and educators are needed. However, the financial sector, including private and institutional investors, can also support US IP through impact investing that focuses on increased access to capital, education, healthcare, and environmental protections while promoting racial equity. The high quality, liquid fixed income market provides many opportunities to do this without sacrificing liquidity or safety, allowing investors to structure their impact investing portfolios to support racial equity and remove obstacles for advancement for US IP.
8 https://www.worldbank.org/
The US is home to some of the largest corporations in the world but the bread-and-butter of our economy are small businesses, which play important roles in both their communities and in the generation of Gross Domestic Product (GDP) of the US economy. When comparing small businesses to large, small businesses stand out. Small businesses combined provide more jobs than their larger counterparts, tend to pay increased and closer attention to their customers, and can pivot faster if the need arises. There are many reasons why it is important to support small business creation, development, and longevity, but it is the impact that they have on their communities that makes the biggest difference.
For example, sales taxes derived from small business revenue stay local and, in most cases, get invested back into the community. So, the higher the tax revenue derived from these businesses, the more money that could be used to fund community improvements such as parks, infrastructure, or recreation centers. Additionally, small business owners often tend to support other organizations and neighbors within the community, sponsoring local youth sports teams, participating in holiday celebrations, donating to nonprofits and charities that support their communities, and hiring employees from within their community.
However, small business owners and entrepreneurs face a host of challenges. While finding capital to start and sustain their business is often the most challenging but imperative issue, other hurdles such as achieving targeted growth rates, hiring and retaining top talent, and ensuring access to management training all must be overcome for a business to survive. Given that 20% of small businesses close in their first year of business9 , it is important to invest in entrepreneurs, small business owners, and the communities they serve.
9 https://www.linkedin.com/pulse/small-business-statistics-2022-recap-what-failuresuccess/
Small business
Investments supporting small business
152
new Small Business Association (SBA) loans purchased621
new affordable rental units (Impact Bond strategy)134
small businesses were CDFI-originatedSupporting small business
Small businesses by neighborhood served
Entrepreneurship profile comparison
Source: RBC GAM, US Census Bureau
*LMI – Low-to-Moderate Income
**BIPOC – Black, Indigenous, and People of Color; AAPI – Asian Americans and Pacific Islanders
† People of Latin American origin or descent
† † Frequently Asked Questions About Small Business, 2021, Small Business Administration
Over the past three years, energy prices, like prices of most goods and services, have increased substantially. According to the US Bureau of Labor Statistics, prices for electricity are 23.6% higher in 2024 versus 2021.10 While this has served to heighten the attention consumers pay to energy consumption, it has also reinforced the importance of building energy-efficient infrastructure and modifying existing structures to become more energy efficient. Most will not be surprised to learn that electricity consumption increased 14-fold from 1950 to 2022 given the advances in technology.11 But it is not just cell phones and laptops that are increasing the demand for energy. In 2022, residential properties accounted for 38% of US total electricity use12
Passed in 2022, the Inflation Reduction Act contains a broad range of incentives to reduce residential energy consumption, including nearly $12 billion allocated to Community Development Finance Institutions (CDFIs) to support mortgage loans to finance energy conservation in multi-family housing developments. The benefits of investing in energy-efficient infrastructure are myriad. Not only can this approach lower utility bills for residents, but it could mitigate risks associated with volatile energy prices and regulatory changes, increase property values and market demand, and reduce greenhouse gas emissions and environmental degradation, all while demonstrating a commitment to sustainability and social and environmental responsibility. Infrastructure that is designed for energy efficiency offers financial, social, and environmental benefits that are increasingly valued by investors seeking to optimize returns while minimizing risks and contributing to sustainable development.
10 https://www.in2013dollars.com/ 11 https://css.umich.edu/ 12 https://www.eia.gov/energyexplained/electricity/use-of-electricity.php
Investments supporting a sustainable planet
Investing in planet
Portfolio investments in clean water and sanitation
Measuring carbon footprint
Net-carbon negative impact per $1M invested
Source: RBC GAM. Comparison of the carbon footprint for the Bloomberg U.S. Aggregate Index vs. Impact Bond, per $1M invested. The comparison is based on the representative account, which is the account in the composite that most closely reflects the current portfolio management style for this strategy. Impact is measured using the investment team’s proprietary impact measurement methodology. For more information on the impact measurement methodology, please contact us at institutional.rbcgam.com/en/us/contact The Bloomberg U.S. Aggregate Index is an unmanaged index that measures the performance of U.S. investment-grade fixed income securities. An investor may not invest directly in this index. We define net carbon negative as occurring when the fund’s avoided GHG emissions exceed the fund’s GHG emissions produced, calculated per million dollars invested (unit = t CO2 equivalent/$M invested). Calculations are inclusive of all fund assets, excluding treasury. GHG emissions (t CO2 eq.) are inclusive of Scope 1 and 2 emissions, and may consider Scope 3 emissions when applicable and available. Multiple data sources are used for GHG emissions data and include: reported data from issuers, reported and estimated data from third party vendors, and sector- and industry-level data from government and academic entities. Gaps in data may exist as climate data and disclosures continue to evolve. Our calculation methodology considers relevant standards and practices, and is proprietary to the Impact Investment team. We will regularly review and enhance our data inputs and calculation methodology to reflect improvements in climate data availability and quality, and advancements in the measurement of climate impact. For more information and details on our methodology, please contact us at institutional.rbcgam.com/en/us/contact
Number of investments in impact supporting UN SDG's
697
1,533