Impact Investing: Trade-offs not required
There may be give and take when you are buying a home or selecting a car, but not with an impact investment.
Impact investments are on the rise. Today’s investors increasingly want to align their values with their dollars. Therefore, investments that have a double bottom line approach are quickly growing in popularity.
Millennials in particular are driving the growth in this category. A recent study by the Morgan Stanley Institute for Sustainable Investing found that 86% of millennials are interested in sustainable investing and they are 2X as likely as the overall investor population to invest in companies targeting social or environmental change.
There is a common misconception that impact investments fail to offer the same return as a traditional investment, but this is simply not the case. As a social impact investment firm who offers social impact with above-market rate returns we are frequently asked what it takes to make an impact investment and what sacrifices need to be made in order to put your money towards a cause you believe in. The answer might surprise you – none.
Impact investing doesn’t require trade-off like slow returns, minimal returns, or high risk according to a 2015 study by Morgan Stanley Institute for Sustainable Investing. The study took a look at the category and showed that social impact funds have met or exceeded the returns of traditional equity funds. In addition, the The Global Impact Investing Network reports that “portfolio performance overwhelmingly meets or exceeds investor expectations for both social and environmental impact and financial return.”
“More education is needed around the subject.” says a spokesperson from DRI Fund. “you are not trading one for another, instead you are getting the benefit of putting capital towards something you care about and making a return at the same time. It’s the best of both worlds.”
Impact investing has been in the spotlight recently. BlackRock, one of the largest asset managers in the world, said in their annual statement. “To prosper over time every company must not only deliver financial performance, but also show how to make a positive impact to society.” According to the New York Times, one of the most influential investors in the world is telling chief executives, “Society is demanding that companies, both public and private, serve a social purpose.” In addition, the new tax bill including the Investing in Opportunity Act which created a once-in-a-generation opportunity to use capital gains to fund opportunity zones around the country.
There is continued interest in sustainable investing regardless of any misconceptions. Currently, 8.76 trillion in SRI assets were under management in 2016 according to the US SIF Foundation and that number is only increasing this year. “Millennials (are) hitting that age where a house and a family start to seem more appealing than an apartment and a fledgling improv career,” according to The Real Deal. As more investors make a commitment to value driven investments, there will be additional opportunities to demonstrate the social and financial impact.
Social Impact Funds are still an unknown to most U.S. investors according to a recent Gallup poll. “Nearly three in four U.S. investors have heard little about the concept of “social impact investing” — choosing investments based on the social good they will accomplish as well as the financial return they will bring.” It’s our job to continue to educate them.