Impact Investing: What Will It Take to Get to Scale?

The world is rapidly changing. Global population has reached 7.3 billion and is predicted to increase to 9 billion by 2050. Eighty percent of the world lives on less than $10 a day. There is pervasively poor access to good jobs, healthcare, education, and housing. Dwindling natural resources, increasing drought and climate-related natural disasters, and insufficient access to energy and sanitation are omnipresent. In order to meet the demand of a fast-growing population, food production must increase by 70 percent.

The status quo of how capital is currently deployed can no longer support this changing world. Philanthropy and government aid are insufficient to solve the world’s most intractable social and environmental issues. There is mistrust of the capital markets, with their myopic focus on quarterly returns rather than long- term value creation.

Impact investing represents a paradigm shift, allocating capital for measurable social and environmental impact as well as financial returns. It focuses on maximizing stakeholder value rather than concentrating exclusively on shareholder value.

Impact investing in the US totals $6.5 trillion, a fraction of the $43 trillion of all US assets undermanagement. The vast majorityof impact assets are invested in the public markets through socially responsible investing (SRI) and environmental, social, and governance investing (ESG) strategies. Deep impact investing — investing in privately held impact ventures and funds — represents just $60 billion worldwide. Impact ventures focus on job creation, financial inclusion, sustainable agriculture, health, education, housing, energy, water, and sanitation.

What will it take to create greater growth in impact investing across asset classes? First, let’s look at the key players in the impact investing landscape and take stock of current activity and hurdles, both real and perceived.

IMPACT INVESTING’S KEY PLAYERS

1 – IMPACT INVESTORS

Impact investors range from individual (retail and high net worth) to institutional (foundations, pension funds, university endowments). High net worth investors have been leading the deep impact investing charge. Through angel investment groups such as Toniic and Investors’ Circle and peer networks like the 100% Impact Network and The ImPact, the deep impact investment movement has been growing. Increasingly, there are deep impact options for retail investors, including offerings from the Calvert Foundation, ImpactAssets, The Nature Conservancy, and RSF Social Finance.

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Millennial Financial Advisors Eye Wealth Transfer to Millennial Investors

I’m an activist and a financial advisor. That’s not traditional, but it’s typical for us millennials.

The millennial generation (born between 1980 and 2000) is the largest generation in America and is about to receive one of the largest transfers of wealth in modern history. A projected $30 trillion in financial and non-financial assets will pass from Baby Boomers to their heirs in North America alone. Soon, if not already, the millennials will become everyone’s target market. Our perspective is quite different than that of our parents or grandparents. We inherited a messy earth and want to fix it. We also believe we can.

Our generation grew up in a world of political instability and compounding environmental issues. Post-9/11, we witnessed controversial wars in Afghanistan and Iraq, the Arab Spring, the financial crisis, unmanageable student loans, the BP oil spill, the Enron scandal, and Katrina. We Occupied Wall Street.

We also saw the birth of Facebook and Tesla. We were exposed to rapidly changing new technologies and global information, news, and social media. Our world has become smaller and our awareness of social and environment issues is pervasive. We are a generation with an entrepreneurial soul. With confidence, not only do we look to the opinions of establishment-dubbed experts, but also we have expanded our circle of influence to include education from countless sources, self-taught thought leaders, and reviewers.

This shapes our attitude towards traditional markets, institutions, and the ways to live a fulfilling life. For millennials, “doing good” means having an awareness of the effects of the products we use, the news we read, the jobs we take, and the investments we make.

The financial advisory landscape also is changing. The rise of robo-advisors and online alternatives has disrupted the competitive landscape. Defining a compelling value proposition is a priority. Holistic financial planning, rather than stock picking and trading, is imperative.

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For Financial Advisors: Enhance Your Practice through Impact Investing

As financial advisors, you serve a greater good – the financial well-being of your clients. You are tasked with anticipating global opportunity and navigating change while striving to exceed your clients’ expectations. It is a tremendous responsibility with exceptional rewards. Advisors can be found among a family’s most trusted relationships, participating in critical decisions and providing the dual blessings of wealth: freedom and security.

We find a growing number of clients seeking to align their investments with their values. For financial advisors, this trend coincides with the rise of impact investing, a market with the potential to reach $1 trillion by 2020, according to JP Morgan and the Global Impact Investing Network.1 Impact investments are investments made into funds, companies, and organizations with the intention to generate measurable social, economic, and environmental impact alongside a financial return.

Industry studies indicate that developing an impact investment offering is a critical element to better meeting the needs of your clients. According to the US SIF 2012 Report on Sustainable and Responsible Investment Trends in the United States, 72% of advisors stated that fulfilling client demands was the top reason they are incorporating environmental, social and corporate governance factors into their investment analysis.2 According to the U.S. Department of Education, women control 60% of wealth, and their numbers are growing at twice the rate of men’s – prompting estimates that by 2030, women will control two-thirds of wealth in the U.S. In the U.S. Trust study, 65% of women respondents believe it is important to view investments through the lens of their impact on society and the environment.

Figure 1: Reasons for Incorporating ESG Criteria into Investments, % of Money Managers Surveyed

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