Despite the many societal challenges associated with the internet, viral news and social media, these digital forces have produced at least one great benefit for humanity: they’ve helped to put a human face on capitalism.
When a factory collapses on innocent workers overseas, when a wildfire wreaks havoc on communities during a drought, or when a whale washes ashore with a belly full of plastic, we see these disturbing images in real-time. The visual nature of news in the digital age has made us more aware and more concerned about social and environmental challenges.
Growing Concerns About Societal Challenges
A recent World Economic Forum survey of 24,766 young professionals between the ages of 18 and 35 found that this demographic believes environmental and social issues account for five out of 10 of the “most serious issues affecting the world today.” And the World Economic Forum’s 2019 Global Risks Report found that environmental risks account for six of the top 10 business risks in terms of likelihood.
But it’s not just the millennials and the Davos crowd who are sounding the alarm. Even the “mainstream” corporate C-Suite are beginning to recognize the strategic importance of societal issues. For example, a 2018 KPMG survey of 1,300 CEOs found that corporate executives place climate change and other environmental risks among the top five threats to growth.
And, as reported in the 2018 RIA Investor Opinion Survey, 81% of Canadian retail investors are concerned about climate change and the environment, and two-thirds would like a portion of their portfolio to be invested in companies providing solutions to climate change and environmental challenges.
Impact investing: a solutions-driven approach
This growing awareness of social and environmental problems has laid the foundation for impact investing. According to the Global Impact Investing Network, impact investing refers to “investments made into companies, organizations, and funds with the intention to generate social and environmental impact alongside a financial return.”
You may be wondering: What’s the difference between responsible investing (RI) and impact investing? Responsible investing refers to a wide range of investments that consider environmental, social and governance (ESG) issues. There are several strategies for incorporating ESG factors into investment decisions, notably:
> negative or exclusionary screening;
> positive screening or best in class;
> integration of ESG factors into traditional financial analysis;
> shareholder engagement;
> thematic ESG investing;
> norms-based screening;
> and impact investing.
So, you can think of RI as an umbrella term that encompasses numerous strategies or approaches, along a spectrum. Impact investing would be a pole on this spectrum, representing companies whose core business model is solving social or environmental problems.