Will more investors opt for impact investment?

impact investment

Socially responsible investing is obviously optimal. But despite its potential only a small fraction of capital is being used to balance social, environmental and economic impact. Watch the short video from The World Economic Forum on how to make impact investing widespread:

Wouldn’t it be a good idea to make investments that both get a high financial return and have great social and environmental impact? But investors continue to focus mainly on financial returns. Are we ever going to reconcile the shortcomings of the financial markets? So far only about US$40 billion out of tens of trillions of dollars have been committed to impact investment.

Are investments without value a good idea?

Wayne Silby, the founder of Calvert, put it this way: “As the global economic crisis shows, money without values doesn’t create the world that we want”.

Amy Bell of J.P. Morgan believes that once a new breed of investors move into impact investing and begin to have success there will be a next wave. She fully expects that  today’s sceptics will at some point be part of the wave.

“We have seen impact investing becoming more and more popular during the last couple of years”, says Abigail Noble of The world Economic Forum. Investors don’t only want to create financial returns but also do well in the world. And Goldman Sachs‘`Andrea Philips stated that they are really excited about the growing emphasis on impact investing.

The conclusionin Davos was that the more we start thinking of the environment and social justice the less volatile and more sustainable the world will be.

Do you agree that the world needs more impact investing? Will the interests of the young generation influence investors to opt for impact investing? Will it move from being the domain of the smart philanthropist to a part of how businesses are run? Will people in the financial markets take a much more holistic view in the future? Will more capital be allocated to impact investment? Or do you think investors should only focus on financial returns?

Video: World Economic Forum – Picture: Dave Center

50 responses

  1. Apparently this is a new wave and on the surface impact investing sounds like the way to go…social and financial returns. One can only hope that the trend continues, but even though this next generation seems more concerned with environmental impacts etc., that will change if the financial returns are substandard. It's the very reason why folks invest…for a financial return. And so many green companies have had little to no success so far. It's a thought provoking post…..
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  2. I find that when I'm making an investment decision today, I do consider the organization's overall philosophy and how it affects the environment, culture and social impact on a region. I know that it isn't always the most popular way to invest, but it has been a successful approach for me and one that makes me feel good about where I entrust my money. I see it as a way to vote for the good guys. That said, I understand that not all of my generation would do that, but I do believe it's starting to catch on. The fact is, if a large block of money bypasses an organization because of what it represents and does with it's employees etc, it can send a huge message that could alter that organizations course over time.

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  3. Definitely agree and hope both Amy and Abigail's predictions are right.
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  4. Nice post, love the educational part of it. I agree, we do need to be more aware of where our money is going, and, is it for the public good? I am a big supporter of the environment and "green" issues, especially since California, where I live is going through a massive drought right now. So important to be more aware of how and where we spend our money AND utilize natural resources. Thanks for sharing this with us.
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  5. Good post – I think this really ties back to a growing realisation that 'short-termism' is not a good way to run business. The focus we've seen on short-term results, where every quarter has to exceed the previous one, has led CEOs to focus entirely on the short-term or face ousting by the board at the behest of the shareholders.

    Many studies have now shown that running a business in a way that benefits the community – having a focus on the longer term, rather than the immediate quarter – returns much better performance over the medium term, as well as resulting in happier employees and a richer (in all senses of the word) community. This is where Impact Investing comes into play – if investors stop looking only at the short-term, everyone benefits…

  6. It only makes sense to make investments and shop at stores that stand for something, and it's a trend that will only continue. I go rounds with my father-in-law about how I don't shop at Wal-Mart or eat at Chik-fil-A, but I want nothing to do with such companies who do not have values I can stand behind.
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  7. This kind of investing is the best kind of investing. You help yourself and everyone around you when you invest this way. I think we are approaching the time when investing in this way will finally pay off. If investing this way is fruitful, then more people will do it.
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  8. Historically, we know that impact investing (or more specifically, divesting) can have an impact as it did in South Africa when large investors such as state pension funds started pulling their money out of South African enterprises that supported apartheid. I'm afraid I'm guilty of not always doing due diligence. Some of our retirement savings are invested in mutual funds and I don't keep track of where they have invested. They invest in hundreds of companies. I also find it kind of ironic that Goldmann Sachs is touting impact investment. Frankly, my inclination would be not to invest in or with them given some of their reprehensible business practices.
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  9. It is a topic close to my heart. I prefer to invest in companies that are sustainable and has a positive impact on the world. That being said, there is a lot of research involved to find these companies and many of them are not public share companies. Hopefully, as the next generation looks to invest, they will force the financial market to create mutual funds that will do the legwork for the individual investor. Thanks for sharing.

  10. I think Impact Investing sounds wonderful but I wonder if it’s realistic. If investors make good returns on their investments, then I can see it moving forward, if not, I may just be “here today, gone tomorrow”. I do think people are becoming more socially and environmentally active but whether that will extend as far as their pocket book – I wonder.

  11. I agree that thinking about the environment and social justice would help make the world more stable and sustainable, but purely financial interests seem to dominate at the moment. I don’t know how we change that.

  12. Catarina,this is only going to happen if profits continue. Let's face it – it's the shareholders returns and salaries that take priority. While I like the idea,it's more likely going to take flight if investors want to take into account,"does this company give to the environment?" and it means something to the investor if that answer is yes.

  13. I've never met a financial adviser who takes it into account. I agree that the world needs more impact investing and don't understand why so many people ignore the idea. I've taken it into account for the last 25 years. My children are much more concerned with it than my generation and I think, and hope, that the younger people will get much more involved in it.

  14. I had not heard the term impact investing prior to this post, but neither do I usually read much about investing especially on a large scale such as what they are discussing in the video. There's no question it sounds great so long as it makes sense for the investors, and I certainly try to support companies that are socially responsible.
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  15. I am always blown away by your blog posts Catarina and at the same time feel completely challenged about how to comment. Naturally I am not business minded but have slowly tried to push myself out of my comfort zone.

    I do not feel I can offer anything of substance so will refrain from doing so. Definitely out of my depth here.

  16. I hope that impact investing continues to grow and does so at a more accelerated rate. We will all benefit if it does. As an American, I am acutely aware of the need for Wall Street to be more socially responsible.

  17. I agree with the concept of impact investing, it could mean so much to the world, and the people who live on it.
    I do have some issues if it will ever have an "impact", as long as greed, and profit is the main purpose of investing, then greed and profit will be the bottom line. No matter how good impact investing is, and profitable; it will never match up to the gains you get from polluting the environment or paying less than a living wage to your workers. I wish that wasn't the case.

  18. I definitely feel that Millennials who will be assuming leadership positions in corporations in the coming years will look more favorably on impact investing. They are concerned with the environment, and they want to work for socially responsible companies. Millennials now outnumber Baby Boomers who run companies now so I think we will see this change sooner than later.

  19. I like to feel good about the companies in which I invest my money. Maybe that isn’t the most popular way to choose an investment but it works for me. It is important to me the organization’s overall philosophy and how it affects the environment, and the region. I think this way of thinking and investing may be more popular with the younger generation, but I’d like to think those In my generation are starting to jump on the bandwagon. If enough people do it, hopefully companies will get the message that this is what is important to consumers and investors today.

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