Will more investors opt for 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’s annual meeting in Davos 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 – You Tube

28 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…..

    • Agree with you, Jacqueline. But can we afford to have a world without values? When social values go down the drain crimes goes up. By the way, did you hear the woman from Goldman Sachs saying they have been into impact investing for years and are very excited about it. If that's correct, you can definitely get high financial returns on impact investments.

  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…

    • Thank you Guy. Agree with the points you make and thought about that aspect of it. A world without values is not what we want. And that applies to the ones making money at the expense of humanity and the environment as well. Many of them have to live in fenced off neighbourhoods in order to stop the poor from robbing them. What kind of a life is that?

  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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    • Yes, impact investing works, above all long term, Suzanne. It's odd that Goldman is so pro the concept but it could mean that there are ways of getting high returns on impact investment.

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