Well folks we’ve got a long-awaited topic to tackle today. Out of all of the questions that come across our desks there is one to rule them all, “Does impact investing lead to lower returns?”. It’s a really good question, so believe me we aren’t knocking you for asking, honestly, it’s something we’d be asking too if we weren’t so immersed in what we do for forty hours a week. The short answer is no, absolutely not. Now at this point you could just take our word for it and carry on with the rest of your beautiful Sunday plans, but if you’d like us to put our money where our mouth is we’ve done that too.
What is impact investing?
Impact Investing as a term has taken on a variety of definitions, but essentially it is a type of investment strategy that includes intentional investments that generate positive, measurable social and environmental impact alongside a financial return. That’s right, read that again, alongside, not instead of, meaning that by definition you can expect to see returns.
“It turns out that investing in solutions to social problems can be profitable.” – Alex Lamb, partner with New Summit Investments in Manchester, Massachusetts, a fund-of-funds manager of private market impact funds.
You can become an impact investor by opening one of many investment accounts available to you from an IRA for retirement to joint investment accounts or individual investment accounts. Now the reasons why people chose to become an impact investor varies from person to person. Sometimes people are tired of not knowing where their money is going, they want more control over the impact they make, or they are just curious to see what we’re all about.
Where did it come from?
The term impact investing was coined back in 2008 by the Rockefeller foundation when the conversation started to emerge about how to use capital differently. Around the same time, we began to see new terms around the same concept come to life from socially responsible investing, to ESG Funds, and ethical investing. Although these terms are distinct from each other, they all work to serve the same purpose – aligning your financial growth with the impact you want to make on the world around you.
How is Impact Investing doing today?
Research shows that socially responsible investing funds have done better in the last 20 years than traditional investing funds. So why don’t more people talk about it? Well, most financial advisors have been taught or have worked with the understanding that investing should only be about making money, which at a fundamental level isn’t a bad way of thinking. However, times are changing and in the world, we currently live in you no longer have to settle for making money or doing good things for the world. As an impact investor, you can have it all (if you have the right coaches helping you along the way).
If you’re more of a numbers person, here are some stats that we hope soothe your worries.
- The MSCI KLD 400 Social Index is composed of companies with high ESG ratings and avoids companies incompatible with specific values-based criteria. This index, which is the oldest ESG index in the US, has shown that ESG can create added value – by outperforming the S&P 500 for the last 25 years.
- A review by the German investment fund DWS and the University of Hamburg of more than 2,000 studies, for example, found that 63% showed a strong correlation between ESG performance and positive returns, while 10% showed a negative effect.
- In its August 2019 report Sustainable Reality, Morgan Stanley concludes: “We found that sustainable funds provided returns in line with comparable traditional funds while reducing downside risk. What’s more, during a period of extreme volatility, we saw strong statistical evidence that sustainable funds are more stable. Incorporating environmental, social, and governance (ESG) criteria into investment portfolios may help to limit market risk.
- Socially responsible investing is the fastest-growing segment of the investment management world.
You absolutely can make an impact without sacrificing returns. If any of this has piqued your interest, we’d love to sit down with you and discuss how this investment strategy can fit into your life. Whether you’re passionate about impacting the environment, global peace efforts, or human rights & diversity efforts we’ve got a portfolio for you. Our team can help you get started on your impact investment journey in just five minutes, so reach out to us! We’re excited to coach you through the next great step in your financial future.