Our world changes quickly, and not always for the better. Many people are more concerned about the environment, social responsibility and other noble causes than they have ever been before, and a lot of these people are looking for ways to have positive impacts on the world. Impact investing would be a good fit for many of these people. Sure, “social responsibility” is a buzzword right now, but does investing in it have the staying power it needs to bring social as well as financial returns? The signs point to “Yes.” Here’s what we know.
Trends in Responsible Investing
Impact investing is a fairly young field, but thanks to investor education and awareness, it’s gaining the momentum it needs to make serious changes. The US SIF Foundation 2018 Trends Report notes that responsible investment assets have increased more than 18-fold since they began measuring in 1995 and that even since 2016 SRI assets in the U.S. have grown by 38% to $12 trillion. There are noticeable trends in the field that suggest the movement is becoming bigger and laying the groundwork for other businesses and investors to seek new opportunities. There are three particular trends in the impact investing field that will help it grow and sustain itself in the future.
Women and Millennial Investors
Financially, women and millennials have a lot in common. In general, they’re motivated by the belief that profit and purpose don’t have to be mutually exclusive, and their money can do more for their portfolios as well as the world. Numbers suggest these groups are about to receive $30-$40 trillion in wealth transfers over the next three or four decades, and therefore control their families’ money. Some of these people are looking to start investing capital before these wealth transfers take place, and they’re looking for ways to do it that align with their values.
Millennials try to be conscious consumers as well as investors, and women want their investments to have positive financial and social returns. Sustainable and responsible investments give both of these groups opportunities to do more, and the eventual control over a significant amount of money gives them the power to shape the industry.
Increased Engagement Thanks to Large-Scale Investors
For any change to really take effect, larger institutions need to embrace it. Right now, Sustainable, Responsible and Impact (SRI) investing represents about 26% of professionally managed assets in the U.S. Luckily, many large-scale investors are already involved with investing with Environmental, Social and Governance (ESG) factors in mind. This is a change that will continue to develop over time; pension funds, academia, and various foundations typically need to revisit their investment policies before smaller institutions can do the same. This requires them to start conversations and keep their eyes out for ways to bring their portfolios in alignment with their missions and values.
The Emergence of a Data-Driven Ecosystem
Data is important for growth in all industries, and a lack of easily accessible information can be a barrier to making gains. There now are opportunities in impact investing across a variety of asset classes for investors to diversify their portfolios, thanks to increasing demand — but without disclosure, transparency or standardization, potential impact investors can’t make truly informed decisions. Until people and institutions start breaking down the myths and barriers surrounding responsible investments, reinforce the trends driving the movement forward, and produce data to back themselves up, the industry can’t grow. Thankfully, there are some ways to collect and make this information available, and many companies are embracing them.
Stories and anecdotes certainly help inspire people, but data is what gets them to make commitments. Investors are encouraged to share their data to expand the understanding of the field and the direction it’s headed. As an example, the Case Foundation created the Impact Investing Network Map to gather data. This map demonstrates the transactions between investors and companies involved in impact investing, with the aim of bringing these publicly available connections to life and create a better understanding of the true potential of the field.
This map is not intended to be an advisory tool; it’s a way to help see the relationships between those actively involved in the impact investing movement. It provides enough information for its users to see what a final product could be. Enough information will make it clearer who’s involved; how impact gets defined; which sectors are robust and how they’re developing; and any geographical patterns that exist.
The map is only as good as the data used to create it, which means larger industry players need to help provide data for it. As more institutions share information, mapping and data will become better and more inspiring and should increase the flow of capital from conscious investors. A lack of data is a challenge, but tools such as the Impact Investing Network Map make it possible for people, communities, and institutions with similar goals to connect and encourage further research, driving more of the efforts they want to see. These opportunities are made possible through disclosure and embracing the trends that ensure impact investing will advance.
Responsible, Sustainable Investing With Falcons Rock Impact Investments
Sustainable investing is here to stay, and its growth depends on conscientious investors like you and companies willing to make meaningful changes. The field still has a lot of growing to do, but signs suggest growth is bound to happen, especially as the industry makes more information publicly available for consumers to make responsible choices. Falcons Rock Impact Investments can help investors like you work toward the better financial and social futures of which you’re dreaming. Learn more about how our impact investing process works and get started today.