Sustainable investments are eliciting strong demand in the investment world, thanks to the growing need to conserve the environment and address many social issues. Likewise, opportunities for impact investing are increasingly cropping up and becoming an integral component of investment portfolios. Morgan Stanley reports that over 75% of individual investors are increasingly deploying environmental, social, and governance approaches to investing.
Gone are the days when ESG was a fad as more and more investors are turning to investment opportunities that can impact the environment and society while generating returns. As of 2018, the total value of sustainable investing assets had climbed to $12 trillion in the U.S and $30 trillion globally. Let us explore the key drivers of impact investing:
Key Drivers of Impact Investing
1. Millennial Investors
Millennial investors are playing a pivotal role in driving impact investments as most of them invest for a purpose in addition to pursuing returns. Unlike the old guard, millennials are interested in returns but want to know their investments are having an impact on society and the environment.
As sustainable investing has shot up since 2015, so has the same coincided with an uptick in millennial investors in the market?
2. Personal beliefs
Strong personal beliefs have also had a hand in fuelling impact investing services. Investors are increasingly following their conscience and unlikely to invest against their personal beliefs. Amid the growing belief that the environment is under immense threat given the ever-growing risk of climate change, many investors have directed their investment to themes that have the potential of saving the environment.
Environmental related themes continue to gain traction as the need to address climate change, enhance plastic reduction, and encourage community development gathers pace. Strong personal beliefs have also forced investors to target investments backed by strong social values such as gender diversity and multicultural diversity, thus the growing ESG investment popularity.
3. Institutional investors
Institutional investors also continue to fuel impact investing. Until recently, most of them were mostly focused on supernatural returns, but not anymore. Institutional investors now want their investments to target double bottom-line benefits while focusing on impact investment.
Most institutional investors urge investment managers and fund managers to do well financially while also doing well socially and environmentally. The investors are also pushing for investment opportunities governed with high standards of governance.
Some institutional investors have been vocal in calling out tobacco, defense weapons, poor labor practices, and environmental pollution. Hedge fund managers have responded adequately thanks to their deep talent pool, technological capabilities that have allowed them to uncover ESG friendly investment opportunities.
4. Better Strategy and Data
Easy access to strategies and data of how ESG investors manage assets and the results they see financially has also had a hand in driving demand for impact investment. The availability of metrics such as the United Nations Sustainable Development goals has made it possible for would-be investors to see the impact sustainable investments are likely to have.
Institutional investors sharing valuable and credible information about ESG investing strategies and their returns, and the impact has also helped fuel interest in impact investing. The sharing of the strategies and data with communities through webinars and conferences has helped encourage more people to invest with a purpose.
Impact investing is likely to continue growing as investors gain access to more consistent data and research showing the impact sustainable investments have on society and the environment.
5. New Players and Shareholder Pressure
The entry of new players and stakeholders also has a hand in accelerating impact investing. New names, some of them quite big, is venturing into the world of impact investing. For instance, a third of organizations that manage conventional investments increasingly impact investments on coming under pressure from shareholders and stakeholders.
The increased pressure and push from shareholders and stakeholders have forced mainstream organizations to pump billions of dollars into impact investing. For instance, BlackRock head Larry Fink has in the recent past urged CEOs and managers to pay close focus on ESG issues and risks. Foundations are also turning to impact investing led by Ford foundations, which has already made a $1 billion commitment to invest in mission-related investments.
Besides, the proliferation of reliable ESG advisory firms such as Altruist League also has a hand in fuelling impact investing. Such services are providing reliable information on highly prospective impact investment opportunities in various sectors.
Salman Zafar is an acclaimed blogger, editor, publisher and digital marketer. He is the founder of Blogging Hub, a digital publishing portal with wide following across the world.