Impact Investing entails investing in companies and organisations which seek to produce a positive social and environmental impact as well as generating a financial return. There are many types of impact investing funds which influence many different sectors in both developed and emerging markets.
Certain considerations relate to impacting investing decisions. These are: ESG (environment, social and governance) factors or Socially Responsible Investments (SRI).
Several wealth managers and asset managers have made ESG at the fore of their strategies. In August 2018, American asset manager BlockRock launched four emerging market debt funds, which incorporate a sustainable investing approach. The new funds range includes the ESG Emerging Markets Bond Fund, ESG Emerging Markets Local Currency Bond Fund, ESG Emerging Markets Corporate Bond Fund, and ESG Emerging Markets Blended Bond Fund.
Merrill Lynch and Merrill Edge are amongst private banks to involve impact investing funds in their portfolios. In May Merrill Lynch and Merrill Edge unveiled five new CIO Core Impact Portfolio’s designed by the Global Wealth and Investment Management (GWIM) Chief Investment Office and was made available to investors for a minimum of $5,000.
Research by British banking group Barclays showed that millennials in the UK are four times more likely to make impact investing a core part of their portfolio compared to older investors. When considering impact investing, it can be quite easy to confuse the term with responsible investment.
While both aim to add some social element to their investments, responsible investment is conducted through negative screening, and whichever industry generates a negative result will be excluded from the entrepreneur’s portfolio. Conversely, impact investment follows a positive screening process, and entrepreneurs naturally navigate towards the investments that yield both profits and address a social issue.
Research outlined in French private bank BNP Paribas Wealth Management’s 2018 Global Entrepreneur Report reveals that reveals that 39% of the world’s most successful entrepreneurs – dubbed “Elite Entrepreneurs” now consider a ‘positive impact’ to be core to how they assess business performance – compared to 10% of respondents two years ago.
While achieving performance targets is important for entrepreneurs, it’s clear there has also been a shift in their mindsets, and this is across all regions. For example, some 55% of the elite entrepreneurs said that they earmarked a proportion of their wealth for investment in socially responsible outcomes. Collectively, they have contributed $2.27bn to socially responsible outcomes
Over the next five years BNP Paribas Wealth Management said 34% of elite entrepreneurs expect to invest more in investment funds, 34% in start-up financing and 32% in equity funding. Impact investing is expected to rise by another 29%.