Financial advisers need to resist the urge to roll their eyes when the issue of impact investing comes up in conversation — because the topic is likely to arise more often and is becoming more important to more clients.
Historically, institutional investors — particularly European pension funds — have led the charge in aligning their investment dollars with their values. But over the last few years, individual investors have jumped on the bandwagon in a big way.
According to J.P. Morgan Securities and the Global Impact Investing Network, a group of 125 impact investors that the firms surveyed committed $10.6 billion in impact investing last year and plan to increase that by 19% this year, to $12.7 billion. That's hardly pocket change.
Within that group, retail investors, high-net-worth individuals and family offices made up 32% of impact investors. Pension funds and insurers made up 22%. The rest is derived from foundations, banks and other financial institutions.
Over the past few years, each of the four wirehouses has developed impact-investing platforms, while opportunities have risen notably through mutual funds that invest in companies focused on producing measurable social impact as well as financial returns.
'GOING MAINSTREAM'
“When you have the wirehouses embracing this, that's a sign it's going mainstream,” Joe Keefe, president and chief executive of Pax World Management,
told InvestmentNews reporter Liz Skinner.
Need more evidence? Just last week, at the Investment Company Institute annual meeting, impact investing was a dominant theme, with some hard-charging competitors setting aside their rivalries to agree that impact investing is here to stay.
Andrew Sieg, managing director and the head of global wealth and retirement solutions at Bank of America Merrill Lynch, said interest in impact investments is particularly keen among baby boomers, with younger investors in that generation preferring strategies that account for values other than business metrics when selecting securities.
That's going to increase the popularity of those strategies in coming years, said Mr. Sieg, who was
joined on a panel at ICI by Bernard J. Clark, executive vice president of advisor services for
Charles Schwab Corp., and Bob Vorlop, head of products and advice for Wells Fargo Advisors.
“I would look at the percentage of time you're thinking about impact-oriented investments — environmental, social justice strategies — and I would double or triple it,” Mr. Sieg said.
Investors are pleased as far as performance goes.
The J.P. Morgan Securities/ Global Impact Investing Network poll found that 91% of investors surveyed said their investments were meeting or exceeding their financial expectations, with about 54% targeting competitive market return rates.
And as long as advisers make it clear to clients interested in impact investing that returns may vary widely and that some financial performance may be sacrificed for social performance, they should embrace this development.
