Investors the world over are increasingly looking for more than just static returns that build their own personal wealth when they seek out places to invest their hard-earned money. Instead, they are looking to make a difference with their investment dollars by supporting companies and technologies that have concrete plans to enact positive global change through advancements in areas like clean energy, sustainable food production, wildlife conservation, employment generation, and access to basic services and financial capital.
That differs notably from sustainable investing, which considers investments through a similar environmental, social, and governance (ESG) lens, but which is more about filtering out unsustainable companies or those involved in the so-called sin industries (weapons manufacturing, tobacco, gambling, etc.) rather than seeking a direct positive outcome or initiative necessarily.
Kevwe Yerifor, who has over 20 years of experience in the financial services industry and who currently serves as the CIO of Capital Intell, says there has been a dramatic uptick in the number of investors looking to incorporate impact investing initiatives into their long-term objectives. The size of the impact investing market is currently estimated at $500 billion, a figure which Kevwe expects to double over the next five years and to continue rising beyond that.
At the front of the impact investing, the trend is millennials, who Kevwe Yerifor believes to be the most socially conscious demographic in history. Poll results bear that out, as 93% of millennials report that the social impact of an investment will be the key to their decision-making process.
That’s not entirely surprising given that millennials have grown up in the most globally connected era ever and are more aware of global inequality and the challenges facing humanity than any previous generation has been.
Millennials are currently limited by the amount of money they can invest, but that will change in the years to come as they rise to more prominent and better-paying positions within companies and come into more money through inheritances. A staggering amount of money, in fact, as an estimated $41 trillion is poised to be passed down over the next three decades.
Impact Investing Infrastructure Rapidly Expanding
It’s not just millennials or other individuals that are driving impact investing. Instead, organizations and even government regulations are spurring an increase in the availability of these investments and the amount of money being poured into them.
Private foundations, NGOs, pension funds, family offices, and development finance institutions are just some of the institutional investors that are beginning to offer impact investing options to their clients, either of their own accord or at their clients’ behest.
Faith-based organizations like the Australian ethical superannuation fund Christian Super, which manages $1.6 billion in client money, are also making a more prominent move into impact investing with the goal of better aligning their investment dollars with their ethics and the core values of their religious beliefs.
In the case of Christian Super, which counts over 500 organizations as clients, the fund allocates 10% of its assets towards impact investments, while the rest is funneled into sustainable investments.
Regulatory rules are also being updated to facilitate a greater number of impact investments. In Canada, charitable foundations, which manage over $45 billion in capital, were previously unable to invest in limited partnerships, a vehicle through which many impact investments are structured. The Canadian government committed to updating those rules in 2015 to open the path to more impact investments.
Regulatory hurdles continue to stand in the way of impact investing in other countries however says Kevwe Yerifor. He points to China as one example, where regulations prevent non-profits from investing in for-profit businesses, even when done through funds like China Impact Ventures, which is one of a slowly growing number of impact investors in China.
China makes up for that somewhat by being one of the leading issuers of green bonds, another promising impact investment vehicle that has opened within the last 15 years. The bonds are similar in their structure, and returns to regular bonds, save for the fact that the funds being borrowed must be allocated towards ecological projects like renewable energy initiatives and clean transportation. The issuer of the bonds is also required to update bondholders on the progress of their initiatives regularly.
While the impact investing market is still a minuscule one compared to the broader investment industry, Kevwe Yerifor finds it exciting to see the growing awareness in this sphere and the incredible potential for positive change that it will inevitably foster.
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