The future of impact investing is the 99%.
Impact investing – investments that focus on making a social or environmental impact – have historically been relegated to the 1% and giant investment firms. Aside from expendable capital, the reason impact investing had trouble breaking into the mainstream was it’s perceived extreme risk. However, time has shown that impact investments can actually be extremely stable and in recent years they’ve become an increasingly popular component of the average investment portfolio.
Impact investing has the power to make positive changes in our future, but, we wanted to know what the future had in store for investors. So, we asked a group of industry experts…
What’s The Future Of Impact Investing?
Here’s what they had to say…
Courtney Blodgett, Impact Investing Program Officer for Vulcan Inc.
“Impact investing and philanthropy are two sides of one coin. When thinking about how to make philanthropic projects like bringing electricity to rural communities or opening up access to the internet in Africa, a sustainable business model is a critical component to long-term viability. We think that the future of impact investing boils down to four core principles:
* Innovation – Apply technology and new business models to create social impact.
* Impact – Measure for impact and ROI.
* Information – Utilize foundational data to guide funding decisions and project scope.
* Integration – Balance funding and giving choices to achieve best solutions for impact and longevity.
In philanthropy, grant-giving can be a catalyst, but to create long-lasting change and impact, capital investment should be the next-step consideration. And the good news is, the need is being recognized and the market is growing. However, the need is still greater than investment commitments.”
Liza Moiseeva, Co-founder of GlobeIn
“In 10-15 years impact investing will be mainstream, the same as conscious consumerism. Right now we are hearing from a small but vocal group of consumers demanding more sustainability and the brands are responding. The food industry was the first one with the rise of organic.
Fashion industry came next with Fashion Revolution and brands like H&M and Levis launching green collections. On top of this, there has been a huge spike of brands who achieved success through their social mission, TOMS and Warby Parker are the best examples of this. Both companies have reached the unicorn status and $1,000,000+ valuations. It’s only a matter of time that traditional investors start responding to this trend, start investing into social businesses like TOMS, Warby Parker, and GlobeIn, slowly morphing into impact investors.”
John Cataldi, Managing Partner of the Native American Venture Fund
“The future of impact investing has quickly evolved from a philanthropic only endeavor to that of social capitalism. Investors expect a return and are willing to invest more when their capital contributions create both profit and purpose. In essence, impact investors deploy their capital to maximizing profits, within their level of risk comfort, while addressing the social and environmental issues that can be addressed through investment.
Especially given the current political climate of the Trump administration, there has been a greater awareness around investments that promotes Economic, Social and Governance (ESG) development activities, especially in the areas of Climate Change. However, in the past, ESG funds has maintained a lower Internal Rate of Return (IRR), 3-5% when compared to Indexed / S&P average annualized returns of 10%.
However, Impact Investing has greatly involved, most importantly the experience level of both the fund manager and their business modeling has greatly improved to provide returns in excess of 10-30%+ that of Indexed funds. Happy to go into more detail with your guidance.”
Laura Callanan, Founding Partner of Upstart Co-Lab
“The future of the American economy is creativity. The future of impact investing in the U.S. is in the creative economy. In 2014, the annual contribution of arts and culture to the United States economy was $730 billion, or 4.2% of GDP. The contribution of arts and culture to the U.S. economy grew by 35% between 1998 and 2014. But currently there are no targeted products, funds or manager strategies allowing impact investors to direct their capital to the creative economy. In order to shape a creative economy that is inclusive, equitable and sustainable, values-aligned capital will be crucial.”
Kristin Hull, CEO & Founder Nia Impact Advisors, and Nia Global Solutions
“Impact investing is quickly growing in popularity among investors of all types and is moving from its early stages, being considered a fringe, fad or alternative asset class to an integral component of an investor’s entire portfolio.
Assessing social and environmental impact will be the future of investing. The successful entrepreneurs and companies of the next 100 years will be those addressing the world’s biggest problems. The best businesses will be those that profit from purpose, with their very purpose for existing to ‘do good.’ And the smart investors will profit by making impactful investments.
Because looking at multiple bottom lines can involve social justice as well as environmental sustainability, we are seeing non-investor types become interested in learning about ways to engage in finance as a tool for social change. With this new interest, we are seeing a change in the face of finance with women lead this charge, creating demand for gender-lens focused as well as for sustainability-driven products.
As more types of investors get involved, impact investing will soon be seen simply as smart investing; as looking at potential impact allows investors to assess both risks and opportunities at a deeper level than a basic balance sheet.”
Matthew R. Blume, CFA, Director of ESG Research at Appleseed Capital
“The biggest development for impact investing over the coming years will be the degree to which ESG criteria are integrated into the mainstream fundamental investment process. As fiduciaries, asset managers bear a heavy burden of responsibility to ensure that all known risks are considered when analyzing investments. This responsibility should ultimately lead to near-universal acceptance of ESG factors as key fundamental considerations in understanding investment risks.
While I believe that mainstream integration of ESG factors into the research process will occur largely as a means of improving risk management on the part of asset managers, I anticipate that it will happen in conjunction with exploding growth in demand on the part of asset owners.
Enormous amounts of wealth will be transitioning to younger generations in the coming years, and I expect this transition to drive a tectonic shift in the demand for impact-oriented and responsible investments.”
David Sand , Chief Investment Strategist of Community Capital Management
“Impact investing as an umbrella term encompasses a mix of investment strategies and philosophies. When gazing into a crystal ball for impact investing’s future, it is important to break out the distinct categories.
ESG screening of public equities. Impact investors who practice ESG screening for various issues should prepare to declare victory in the next decade or so. ESG investing will become another form of regular investing.
Impact venture, debt and private equity. These asset classes will continue to see vanilla and impact choices offered to clients. Debates about whether an investor can apply values to their portfolios will be replaced by discussions of whether they should do so. The quantity and quality of impact reporting and transparency will appreciate by leaps and bounds in years to come.
Global impact investing. Impact investing is taking place today primarily in Europe and North America. In the next decade it will be adopted globally in various forms across the developed and developing world.”