“A movement is afoot.” –The U.S. National Board on Impact Investing (NAB)
That’s how the NAB – a group of leading investors, academics and organizations focused on US domestic policy for impact investing – recently characterized today’s growing flood of capital toward investments that generate beneficial social and environmental impact as well as financial return. It’s an investing sea change, as investors deploy the global markets to help “scale solutions to some of our most urgent problems,” the NAB wrote in a new report.
The concept of impact investing isn’t new – in fact, the NAB traces its roots back to private and public sector efforts beginning as long ago as the 1950s. But the potential for private capital to affect the public good today is drawing more attention than ever. What’s more, evidence is growing that it’s far more than a movement only for the deep-pocketed or socially conscious, with even “mainstream” individual investors actively looking to invest for impact. The investment trend is almost certainly gaining force from rising public focus on the effects of climate change: Witness only the 250,000 people who thronged the streets of Manhattan on September 21 calling for action as the United Nations prepared to convene its own climate summit.
Yet, market data also suggest that though interest is palpable and growing, many investors are still struggling for a way in.
The market’s growth is undeniable: A survey of major fund managers and investors by JP Morgan and the Global Impact Investing Network (GIIN), released earlier this year, found $46 billion in impact investments under management, up nearly 20% from the prior year. Impact investing as a genre remains modestly sized, relatively speaking; McKinsey estimates that such investments currently represent just 0.02% of the $210 trillion in global financial markets. Yet key players, among them the Monitor Group and the Rockefeller Foundation, believe the market could grow as much as 10 to 20 times within just a few years.
Principled support is helping drive the trend – a 2013 study by the World Economic Forum found that millennials consistently ranked impact performance as their primary investment criterion, ahead of return. At the same time – a 2010 survey of 4,000 investors by Hope Consulting found that just 12% had any experience with impact investments, even though almost half were interested in them. Similarly, in a survey (subscription required) of more than 1,200 investors we conducted with Allianz Global Investors, 85% said their advisor had yet to recommend an environment-related opportunity.
Advisors who answer the call can be confident that investing for impact can readily co-exist with a focus on return. Indeed, the World Economic Forum found that 79% of impact investors are targeting market rates of return. And a JP Morgan/GIIN survey of 125 large impact investors found that, for 91%, their investments were meeting or exceeding their financial expectations.
Impact investing is no flash in the pan – it is indeed a movement, with a sense of purpose, committed followers, and increasingly robust resources. Yet, according to the JP Morgan/GIIN study, impact investors cite “a shortage of high-quality investment opportunities with track record” as the market’s most limiting feature today. That suggests there’s a considerable opportunity to expand the market’s product set – and more widely communicate the genre’s powerful characteristics – for both managers who offer impact investments and advisors who can effectively counsel investors on how to use them. More and more, investors want to invest with impact front-and-center alongside other deeply felt goals – and it seems likely they’ll reward both providers and advisors who can show them the path.
–Jim Marren, President, Tiller, LLC