Consumers are increasingly aligning spending with brands reflecting their values. They are gravitating toward brands like Warby Parker, which donates a pair of eyeglasses to one of their charity partners for each pair purchased, or Tom’s One for One, a program that provide one pair of shoes to somebody in need for each pair of shoes purchased. The list of consumer companies with similar programs or other socially conscious measures tied to their product sales continues to grow. In the same way, many investors look to align their financial goals with products and services reflecting their philosophical and social convictions.
Helping Your Clients Make Choices That Matter
Investors have more options than ever before to align their life philosophies with their investments. Impact investments, addressing social and environmental issues, are ample. Investors can range from institutional investors and foundations to individuals. Their impact investments can be made using a number of investment vehicles such as Exchange-Traded Funds (ETFs), micro finance platforms, or pooled investments by multiple angel investors. The easiest way to integrate socially conscious investments into a portfolio are ETFs addressing a wide range of issues such as low carbon targets, gender diversity, fossil fuel reserves, free investments, etc. These are mere technicalities of the trade, however. The big question is, “Do I really know my client well enough to make meaningful suggestions after vetting options carefully?”
Impact Investing – A Growing Field
According to the 2018 Global Impact Investing Network’s (GIIN) Report, which is in its eight edition and was supported by the United States Agency for International Development (USAID) and the British Department for International Development’s Impact Programme (DFID), the impact investing industry continues to grow. The report tracked 229 respondents. Only 50% of those had already made their first impact investments ten years ago. All other respondents had gradually entered the space since then. GIIN reported that this is indicative for continued growth in the field. Two hundred and twenty-six (226) respondents reported having an aggregate of $228.1 billion in impact investing assets under management (AUM). Eighty-two percent (82%) of these respondents reported their investments had met their expectations for impact, while 76% of respondents said their investments had met their numbers for financial performance, and 15% reported their investments’ outperformance across each of these dimensions.
Impact Investing Taking Root
All investors agree on the need to measure their portfolios’ performance against the social and environmental goals set at the outset for these investments. To this end, respondents use a mix of reporting tools. Sixty-nine percent (69%) reported using proprietary metrics combing them with external methodologies, while 66% are using qualitative information, and 59% use metrics based on the GIIN’s IRIS methodology. Others are using third-party certifications for impact investing or follow self-imposed governance guidelines and a code of conduct for investors.
Advisors take painstaking efforts to know their clients. Helping clients align their investments with their philosophical and social values, while also helping create financially secure future for them and others can prove to be a great differentiator for an advisor’s business. It also can be very rewarding in more ways than one.