Impact Investment: The Future of Capital
Where EB-5 investment is intended to be a means for job creation in the United States, impact investment is becoming an increasingly popular form of economic growth for social or environmental development. While the field is still in its formative years, the practice of impact investment is becoming more mainstream.
What is Impact Investing?
Impact Investing refers to investments that are made up of companies, funds, and other organizations, with the intention to generate a beneficial effect either socially or environmentally alongside a financial ROI. Impact investors actively seek to place capital in business, non-profits, or funds harvesting the positive benefits of enterprise. Impact investing has also been known as socially responsible investing, mission-related investing, and ESG (Environmental, Social, Governance). Many see that with impact investing comes both a challenge and an opportunity. When dealing with this type of investment there are few things to consider:
The number impact investing firms are growing, and along with their growth is the number of impact investing products offered by these mainstream firms. Research is critical for anyone making decisions with the investment, particularly when an advisor must evaluate the measurable impact along with the risk and returns.
In the way of Wall Street, firms are now competing against each other to see who can raise the most impact assets. Today there are major wirehouses and several independent RIA networks that have created impact investing platforms that promote advisor and client impact.
Transparency in Strategy
The overall impact investing umbrella is broad enough to encompass several different strategies. Some of which view impact as avoiding or screening for investments in certain categories. Others consider impact investing to be an active approach to global problems with an ongoing assessment over the investment’s lifetime.
Investment in fossil fuels has been a global debate for decades creating a sort of checklist of who does or doesn’t invest in a carbon-based portfolio approach. This very debate is what is influencing the investment industry to consider the consequences of portfolio decisions further and has lead to where impact investing is today.
What a lot of firms are also offering now are model portfolios that have impact investment opportunities built into them. These pre-packaged portfolios provide impact investment options horizontally across asset classes.
Those of the millennial generation are as likely to choose B corporations, pay for success bonds, and invest in crowd-funding, social enterprises, and entrepreneurship as they are to invest in traditional options. Much of the growth and construction in financial services has direct ties to investors’ future choices.
With the increase of technology and information available, investors themselves are becoming more DIY savvy when it comes to investment. Advisers must be mindful of the amount of data available to clients via the internet, so they should educate themselves on as much information as possible with impact investing to help meet clients’ interest and needs.
Entrepreneurs should carefully consider the impact of their business and look to benefits it can provide to communities beyond profit and jobs. Making decisions related to sourcing component products, location of facilities, hiring practices and policies and much more may be informed by goals of promoting both a stronger community and increasing the bottom line. When the consumer is faced with a choice, how your company makes these decisions can provide an edge over the competition if you have carefully made these decisions and appropriately informed potential consumers of the intentional impact your company is having.