If more companies trend towards having a global impact as part of their mission, then more impact investing could be on the horizon. The group B Labs has seen a 25% increase in B Corps and recently the Business Roundtable revised its statement of purpose towards greater impact. So change may be on the horizon.
We’ve covered socially responsible investing a few times over the last three years, including detailing how it’s evolved from green investing in the 1990s to something that can actually turn a profit. We also discussed how socially responsible investing has shown long term success. And now we can see who chooses impact investing with the results of a new survey.
As a reminder, we defined socially responsible investing (SRI) is an investment strategy that seeks both financial return and social good – beyond just impact on the environment or a restriction on investing in companies that make certain products (like guns, alcohol, fast food, or pornography) – but looks for an effort to positively impact their community through investment, such as by investing in small businesses in low wealth neighborhoods.
The growth in SRI is noticeable. In 2017, there were an estimated $8.72 trillion in assets under management with sustainable directives, up significantly from $6.57 trillion in 2014. In 2018 that number swelled to $12 trillion. In early 2019, Bloomberg News reported that this number had topped $30 trillion globally, pushed by “Japanese pension funds, retail investors everywhere” and noted the growing concern with climate change.
Impact investing is similar to SRI but drills down into investing in specific projects, rather than focusing on funds or stocks. Investopedia defines impact investing as aiming “to generate specific beneficial social or environmental effects in addition to financial gains. Impact investments may take the form of numerous asset classes and may result in many specific outcomes. The point of impact investing is to use money and investment capital for positive social results.” Impact Investing and SRI are similar, says Net Impact, but differ in approach. “While both types of investments integrate nonfinancial factors in investment analysis, the key differences between the two lie in the strategies used to accomplish positive outcomes as well as financial return expectations.”
Results from the Global Impact Investing Network’s (GIIN) 2019 study highlight how impact investing, like SRI, is also growing at a fast pace. GIIN touts itself as “the global champion of impact investing, dedicated to increasing its scale and effectiveness around the world.” That study surveyed more than 200 investment managers with $239 billion in impact investing assets. 80 of those surveyed reported growing their assets under management from $37 billion to $69 billion in four years with a compound annual growth rate of 17%. With CAGR’s of 18 to 25% in the same time frame being generally considered good, it’s probably safe to call this growth notable as well.
What else is worth noting about impact investing? The motivation behind the choice to invest based on impact may be worth considering. The GINN study found “At the organizational level, respondents make impact investments because they are part of their commitment as responsible investors (85%) and because intentionally pursuing impact is central to their mission (84%).” If more companies trend towards having a global impact as part of their mission, then more impact investing could be on the horizon. According to B Labs, a nonprofit booster of B Corps, in June 2019, there were over 2,750 certified B Corporations across 150 industries in 64 countries. As of the end of 2016, the community of Certified B Corporations is over 2,000. A 27% rise over 4 years may not be meteoric, but it’s worth noting. But B Corp status alone probably doesn’t measure a shift in company’s focus on impact. In fact, corporations can, and have, had missions towards impact even if they aren’t certified B Corps. To that point, in August of 2019, 181 CEOs that belong to the Business Roundtable, an association of chief executive officers of America’s leading companies, signed a revamped statement of purpose indicating that they existed to serve more than just their shareholders.
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