Once regarded as a disruptive investment concept, impact investing has evolved into a diverse and intricate investment ecosystem. With this maturation has come the realization that impact investments can yield risk-adjusted, market-rate returns comparable to non-impact ones while also having a positive social or environmental impact. As such, interest in impact investing has grown, and not just in the family office space.
Public pension funds, sovereign wealth groups, university endowments, and other larger institutions are all actively considering their options in this arena, as are many individuals. According to the Morgan Stanley Institute for Sustainable Investing’s recent report, 85% of investors and 95% of millennials in the United States are interested in sustainable investment options.
While many regard impact investing as a purely direct investment opportunity, few realize that they can put their capital to work in the impact space through managed funds. For those with lesser direct investment expertise, limited access to enough deals, or a lack of time and resources to conduct the burdensome analysis and more in-depth due diligence that impact investments require, funds are an attractive prospect. Recently there’s been a marked uptick in the number of people choosing to invest with funds whose social, environmental, and financial goals match their own.
When impact investing through funds, what should be considered and expected? How does one identify suitable funds and is there anything to think about beyond investing capital?
Things to consider and what to expect from impact investments
According to the Global Impact Investing Network (GIIN), impact investments are intended to generate social and environmental impact alongside financial return. When assessed and selected with care, sustainable and impact investments can offer risk-adjusted, marketed related returns while also making a difference. They do, however, require a far greater depth of analysis and due diligence than their non-impact counterparts.