Impact investing soars with $12 million green bond sale by Merrill Lynch

Merrill Lynch Wealth Management advisers sold $12 million in green bonds issued by the World Bank last week, surpassing what the investment bank expected based on similar issuances a few years ago. About 70 clients bought the AAA-rated World Bank Green Bonds, which mature in 10 years though are callable after a year. The bonds, which pay a 2.32% coupon per year for the first five years and step up to a maximum of 8.82% per year, will fund World Bank-financed projects focused on low carbon development. Orders for the bonds were “meaningfully higher” than anticipated, considering two sales of similar bonds in 2011 totaled $2 million and $3 million each, said Kirstin Hill, managing director and head of wealth management product origination for Bank of America Merrill Lynch. “Demand came from a wide variety of clients — some excited by the AAA-rated security that also allowed them to invest in achieving positive environmental outcomes,” Ms. Hill said. Last week's Merrill Lynch sale illustrates the growth over the last few years in impact investing, an approach that targets companies or projects that can effect positive change in a community or further a cause, while at the same time delivering a financial return. (Read the related cover story, “When money has an impact.”) Clients are demanding more impact investments, and there are more investment options available today that offer social improvements and a real positive return compared to a decade ago, said Surya Kolluri, managing director and manager of private wealth and retirement policy and planning at Bank of America Merrill Lynch. Advisers are responding to client demand and learning how to incorporate impact investing into a portfolio, he said. The firm offers a day-long program on investments with an environmental, social or governance (ESG) focus and how to discuss the topic with clients. About one-third of Merrill Lynch's 13,800 advisers have done business in ESG, and a smaller, unspecified number are “power users,” Mr. Kolluri said. Even outside Merrill Lynch, which has made a corporate commitment to impact investing, advisers are finding that many clients want to link their portfolios and their social goals. Surveys show impact investing is one of the most important criteria for younger investors, such as Millennials, said Beth Stelluto, chief growth officer of Impact Assets, which offers a donor-advised fund and publishes an annual list of 50 investment managers who specialize in the segment. “As that kind of interest evolves, we'll see the market evolve,” she said. “We already are.” (Read the related special report story, “Female clients' unique approach to investing.”) Advisers looking to help clients invest with impact have two issues that guide them toward the right investments, she said. The first is wealth. Those with the least amount to invest are typically steered toward socially responsible mutual funds, or donor advised funds that investment and donate philanthropically, or community investment notes, such as those issued by the Calvert Foundation, Ms. Stelluto said. For those with more resources, there are private debt and equity funds, which typically require investments of $250,000 or $500,000, she said. The second consideration is the specificity of the investor's mission. Those with broader social or environment goals, such as poverty alleviation, will have many more investment options to consider than someone focused, say, on the intersection between health and buildings. Such a specific mission will likely have to be met by financing private projects, Ms. Stelluto said. More on why socially responsible investing is taking off: