This is the first in a three-part series of guest blog posts by The Consortium’s strategic partner Net Impact, which mobilizes new generations to use their skills and careers to drive transformational social and environmental change.
There are big changes occurring on Wall Street. The reason for these changes is a term first coined in 2007: impact investing.
Impact investing, also known as socially responsible investing, refers to investments that generate both positive impact and market rate returns. For impact investors, the best-case scenario is for impact investing, over the long term, to become a normal part of investment criteria, a big shift from historical investment practices.
With impact investments on the rise and expected to continue, we want to ensure you stay informed. Here we present the who, what, when, where, and why of impact investing.
Who is making impact investments?
Everyone from big financial institutions, such as JP Morgan, to private foundations, like The Rockefeller Foundation, to world-renowned athletes, including former world No. 1 tennis player Andre Agassi and basketball hall-of-famer Magic Johnson, are making impact investments.
Millennials and Generation Z are also showing support and excitement for impact investing. The transfer of wealth from the baby boomers to millennials has revealed a profound difference in investment strategy between the generations. According to a recent study by Morgan Stanley on sustainable investing trends, 66 percent of millennials are familiar with socially responsible investing.
Simultaneously, impact investing has become an increasingly popular field of study in business schools (including many of The Consortium’s member schools). At the University of Pennsylvania’s Wharton School, impact investing courses outperform traditional investing courses in terms of enrollment.
What are they investing in?
Impact investing is based on two impact sectors: social and environmental. The social impact sector can range anywhere from health care to microfinance, food security, power and housing. The environmental impact sector is based on the challenges that come with climate change, including resource scarcity and conservation, energy efficiency, clean water, sustainable agriculture, food, and timber. Impact investors focus on companies that have a positive impact on the world.
That said, some impact investors do invest in more traditional energy companies, either because a company’s environmental record is better than its peers’ performance, or because it is seeking new ways to limit environmental damage.
When is the right time to invest responsibly?
A growing number of investors have been investing responsibly over the past few years. This recent surge in interest for impact investing is well documented. For example assets in socially responsible investing, which include assets tied to an impact mandate, hit $8.7 trillion in 2016, an increase of more than 183 percent since 2010.
Money is being invested at higher rates than in previous years to counteract the current state of social and environmental challenges, a huge benefit to emerging social entrepreneurs also working to make a positive impact.
Where are impact investments going?
Impact investments are being made around the world with special attention towards developing countries. Some impact investing firms focus on one country or region for their investments. Vital Capital Fund invests primarily to enhance the quality of life of communities in Sub-Saharan Africa whereas Unitus Impact invests in Asia’s fastest growing economies, including India, Indonesia, Vietnam, and the Philippines.
However many people are also looking to invest more locally. Investors are now investing at the state, city, or even neighborhood level. The Reinvestment Fund works to improve the quality of life in low-income neighborhoods around the United States. Corporate philanthropy is also moving in this same direction, known as hyperlocal investing.
Why is impact investing so important?
Impact investors focus on companies that have a positive impact on the world, rather than simply avoiding those that cause harm, such as polluters or those with repeated problems of mistreating employees. Impact investors, for example, would be more likely to talk with companies and influence their practices. A lot of impact investing strategies put the spotlight on companies doing well, and encourage strong business ethics.
Impact investing has become a strong potential driver of change that continues to propel our society forward.
Related posts in our series
Allen, Nathan. “Impact Investing Takes Hold on Business School Campuses.” Fortune, 28 June 2016. Accessed 20 March 2017.
Dilts, Elizabeth. “NBA’s Chris Paul, other celebrity athletes, invest for an impact.” Reuters, 20 March 2017. Accessed 20 March 2017.
Morgan Stanley. Morgan Stanley Smith Barney LLC, 2016. Accessed 20 March 2017.
US SIF. “US Sustainable, Responsible and Impact Investing Trends 2016.” The Forum for Sustainable and Responsible Investment. 2016. Accessed 23 March 2017.
Waggoner, John. “Impact investing in the age of President Trump.” Investment News. 5 March 2017. Accessed 20 March 2017.