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Impact Investing—Five Trends Advisors Need To Know

Research shows that clients are interested in impact investing when the options are presented to them, yet many advisors still aren’t sure about it themselves. Here are the trends you need to know.

By Amy Bennett

Impact investing is one of the hottest topics on advisors’ radar screens, with studies showing expanding interest among key client groups, rapid growth in assets under management and widespread adoption among investors seeking to align their portfolios with their personal values.

According to US SIF, the forum for sustainable and responsible investment, which produces a biannual report on sustainable, responsible and impact-investing trends, nearly $9 trillion was invested in sustainable and impact investments at the start of 2016, an increase of 33 percent over 2014. These assets now account for more than one out of every five dollars under professional management in the United States.

Despite the growth and the well-documented interest, many advisors aren’t sure where to jump in when it comes to impact investing. Here are five trends that are helping to shape this nascent but rapidly growing segment of wealth management—and may give advisors an entry point:

Philanthropy and Impact Investing Are Becoming Intertwined

From the Ford Foundation to Omidyar Network to impact-oriented donor-advised funds, philanthropy is rapidly adopting impact investing as a tool to double the power of giving. “It’s not an either/or question when it comes to impact investing. It’s yes/and,” says Matthew Weatherly-White, managing director of The Caprock Group.  “For many advisors, charitable dollars provide the ideal ‘jump-in’ point—a venue to test ideas and learn about impact with clients.”

Weatherly-White also notes that charitable dollars are increasingly serving as critical research and development funding for new ideas, products and markets, particularly regarding impact investing. “The link between innovation-oriented capital and the capital markets makes all the sense in the world,” he says. “This is the future of capitalism and advisors need to keep an eye on the power of philanthropy in a client portfolio.”

DAFs may be the most direct pathway to blending philanthropy and impact investing. Organizations like RSF Social Finance, ImpactAssets and SharedImpact enable advisors and clients to put undisbursed charitable assets to work in impact investments, including environmental, social and governance-focused mutual funds and high-impact private debt and equity which focus on issue areas such as climate solutions, global health and microfinance.

In addition to providing advisors and their clients with an entry point to impact investing, philanthropic impact investing has the potential to double the impact of charitable dollars—first as an impact investment and second as a charitable gift. Advisors like Will Lana of Trillium Asset Management are gaining valuable skills and insights about impact investing by overseeing the assets in these DAFs.

“Being able to generate a return but also do it in a way that’s consistent with your personal mission is important,” says Lana. “And implementing this strategy within a donor-advised fund is actually not a tough sell; it’s just a matter of people being educated about it and financially in a position where it fits with them. People usually are excited by it.”

A Growing “All-In” Movement

Increasingly, impact-oriented investors are looking to move 100 percent of their investment portfolios to investments that create positive social and environmental impact. “The momentum behind 100 percent impact investing is both reflected in and accelerated by the growing number of organizations devoted to promoting the concept and supporting investors,” writes Don Shaffer,  president and CEO of RSF Social Finance. 

The Toniic Institute, a nonprofit global organization of impact investors, is one example. The organization’s “100% Impact Network” has 130 investors actively moving $4 billion into impact investments. 

Resources are also increasingly becoming available to advisors looking to make the leap to 100 percent impact. In their groundbreaking paper, Construction of an Impact Portfolio: Total Portfolio Management for Multiple Returns, Jed Emerson and Lindsay Smalling of ImpactAssets lay out a four-step approach to portfolio-level impact investing that focuses on optimizing diversified financial returns while maximizing impact as appropriate for any given investment asset class. 

Women and Millennials Lead the Demand

Across the industry, impact investing is mainstreaming, and advisors see key drivers in two investor groups: women and millennials.  In its annual survey of high-net-worth and ultra-high-net-worth Americans, U.S. Trust found that 45% of all high-net-worth investors either own impact investments or are interested in adding them to their portfolios. Over half of the millennials surveyed indicated interest in investing for impact, according to the report. Women outpace men in impact investing, interest among men has risen 16% since 2015, now sitting at 31% compared to 34% for women.

“Women are still leading the charge in impact investing, although men continue to show increased interest,” writes Jackie VanderBrug, managing director and investment strategist for U.S. Trust.  “All generations of investors—not just millennials—are in tune with corporate America’s effect on society and the environment.”

Morgan Stanley found even stronger support for impact investing. According to its research, 86 percent of millennials say they are interested in socially responsible investing.  Millennials are also twice as likely to invest in a stock or a fund if social responsibility is part of the value-creation thesis.

Lead, Follow or Get Out of the Way

 Competition is rapidly growing among registered investment advisors and other intermediary firms and as Fran Seegull of the U.S. Impact Investing Alliance puts it, “traffic jams are starting to occur in impact investing.” This may be a necessary evil as impact investing continues its upward trajectory and investors, managers and other players find the right roles to play in this rapidly growing portion of the investment world.

This growing network of consultants and advisors, broker-dealers, online platforms and other organizations are the “connective tissue that binds asset owners and investment managers,” according to Seegull and Christina Leijonfvud of Tideline in ImpactAlpha. But without some changes—including greater transparency among the different players and clearer segmentation of skills and expertise—intermediaries may become impediments to the long-term growth of impact investing. Advisors who clearly define their services and cooperate with other intermediaries will be long-term winners as more assets migrate to impact investing.   

Customization and Democratization

Impact investing is barbelling, with increased customization for ultra-high-networth clients and a growing supply of low-cost/low minimum products coming to the marketplace. This gives advisors greater ability to construct impact investing portfolios with public and private debt and equity that are built to last. 

For decades, socially responsible funds were looked down upon by many on Wall Street. Today, virtually every asset manager on the street has acquired a money manager with SRI (socially responsible investment) or ESG (environment, social and governance) expertise, or is developing it in-house. Morningstar and others are rating, following and analyzing funds and exchange traded funds that seek financial, social and environmental returns. The times they are a-changin'. 

For UHNW clients, the offerings are even more robust. On the customization side, ImpactAssets and RSF Social Finance are providing clients with access to direct investments into private mission-driven businesses, impact funds and nonprofit organizations that are committed to measuring and reporting on their financial returns as well as social and environmental impact.


Amy Bennett is the director of marketing for ImpactAssets, a nonprofit financial services firm started by the Calvert Foundation to broaden and enhance the impact of socially responsible investors.

TAGS: Philanthropy
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