Investment Strategies

Making a case for impact investing

As more investors get on board, advisers need to make sure it is a core part of their practice

Apr 24, 2016 @ 12:01 am

By James Lumberg

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Sometimes a movement, whether social, political, economic, or even investment-focused, proceeds at a measured pace for years before key forces converge, propelling it to dramatically new levels of focus and attention. For example, the climate change movement achieved striking global prominence in December 2015, as nearly 200 nations agreed to sweeping, long-term steps to ratchet down global carbon emissions.

A similar convergence is overtaking impact investing — reinforcing its key role and striking growth. Impact investing, also known as sustainable or socially responsible investing, has been practiced for well over a century, although not necessarily in the investing mainstream. But now profound forces will inevitably motivate financial advisers to define an impact-investing capability as essential to a state-of-the-art advisory practice that's attuned to meeting client demands.

Market evidence shows overwhelming support for the business case for impact investing, powered by portfolios reflecting a deeper, fundamental understanding of client goals, with potentially compelling portfolio performance.


The market's remarkable growth trend is pivotal. Over the past 20 years, the U.S. impact-investing market has grown more than 1,000%, from $639 billion in assets in 1995 to nearly $6.6 trillion in 2014, according to the US SIF Foundation. And it is far from played out: Despite being the largest regional market by assets under management, the U.S. accounts for just under a third of the $21.4 trillion in global impact assets, according to the Global Sustainable Investment Alliance.

Investing for societal effects has steadily gained adherents, despite its confusing and historically inconsistent labeling and definition. Our broad definition incorporates assessing and choosing investment assets that consider sustainability of a company's business practices; environmental, social, and moral implications; and corporate governance.

Mounting evidence indicates a generational shift toward investing to address deeply held societal concerns and interests. Research by Motif Investing shows nearly half of all investors (70% ages 32 and below, and nearly 60% ages 33 to 48) believe investment decisions can express their social, political, and environmental concerns.


They also want to express proactively a societal view via their investing: About seven in 10 indicate they prefer investing in companies that have a positive impact, rather than merely boycotting harmful ones.

Indeed, investor sentiment is driving the market's steady expansion. “Client demand” was cited as the primary reason for investment managers to incorporate impact factors into portfolio design, according to the US SIF Foundation.

Advisers question how they can efficiently integrate portfolios with impact strategies that fit their clients' interests and return goals while sustaining their clients' long-term commitment to the approach.


New practice management services and platform technology on the horizon offer turnkey support for an impact-investing capability, encompassing manager research and selection, strategy implementation, and ongoing monitoring and reporting. Adviser tools will show clients the social and portfolio benefits of their impact allocation, demonstrating its alignment with their passions and financial priorities.

Due diligence in impact investing is fast evolving, and advisers can easily access comprehensive, established knowledge and research via new platform technology.

The convergence that's thrusting impact investing to the forefront will have staying power. The consulting firm Accenture estimates that $30 trillion will pass in the next half century from baby boomers to younger investors — many of whom have “grown up” with the impact investing their older generations lacked. For many of them, it will be second nature. For example, a Spectrem Group study showed 45% of wealthy millennials want to use their wealth to help others and consider social responsibility when making investment decisions.

Staying engaged with these investors throughout their lives demands fresh approaches and solutions. Impact investing must be an integral part, and inevitably a core offering, of any relevant and successful advisory practice.

James Lumberg is a co-founder and executive vice president at Envestnet.


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