Customers now more than ever before crave investment options that create social good for profit. Impact investing―or making investments that improve social and environmental conditions, while also generating a strong financial return―is today’s hot financial strategy, with upward of $46 billion in investments under management.
From bolstering high-risk U.S. cities with competitive education programs; to connecting African communities with mobile phone infrastructure; and providing disabled individuals with the financing they need to lead more productive lives; impact investing seeks to maximize social and environmental impact, as well as financial performance.
Investing For Blended Value
Impact investing is all about “blended value.” The idea that investment strategies can generate financial return while simultaneously improving social and environmental conditions is shaking up the investing and philanthropic universes―previously a bifurcated landscape.
Although impact investing is by no means new, it has become far more popular over the past few years as firms see the potential value in adding impact investment offerings, and customers increasingly ask about these options.
As a result, impact investing has moved beyond the scope of microfinance. Today, impact investments are offered at a wide variety of financial services firms. Goldman Sachs, for example, continues to pursue partnerships with the U.S. government to support their social impact bonds, which aim to touch all kinds of social change, from revitalizing the New Orleans community to bolstering early childhood education in Chicago. Retail banks, such as BNP Paribas, are providing the opportunity to invest and create social good. Investment banks, like JPMorgan, have skin in the impact investment game through placing some of their own capital into impact funds. Institutional investors also have incredible potential to grow their capital, while making a positive social impact.
Blended Value Needs Effective Communication
Impact investing is a largely untold story about an industry that is poised to grow 10 to 20 times its current size in the near future. Although impact investing has grown immensely since the term was first coined in 2007, there are still key audiences that the story has not reached.
Right now, communicating the impact investing message falls largely on the shoulders of individuals, rather than prominent companies or groups. As Antony Bugg-Levine and Jed Emerson express in their book, Impact Investing: Transforming How We Make Money While Making a Difference, the challenge today is bringing impact investing, “from the fringe to the mainstream.”
This is especially important since impact investing is relatively young in practice. There is still a great deal for the experts to learn and discover, including evolving regulatory changes and navigating the shifting relationships between private and political entities.
Perhaps your company is already investigating impact investing pursuits. If so, now is the time to be an advocate for the industry and think about how to tell the story.
By talking about the value of impact investing, there is a real opportunity for financial services firms to tap into new market segments. In many ways, Millennials are driving the demand for impact investments and are widely considered to be the industry’s future through their desire to drive both profit and purpose in their financial activities. This generation will only become more ingrained as a part of financial services companies’ customer bases tomorrow. Speak their language today by communicating the potential to do good, while building their financial futures.
What Does The Future Hold?
The future of impact investing is difficult to pinpoint, though one thing is clear―there is a growing appetite for these products among investors, and it is now permeating the financial services industry. Firms anticipating that their customers want to add social value while creating value for themselves have the potential to tell a compelling story and attract the next generation of investors.
Have you seen a greater interest in impact investing from your clients? What kinds of questions are you hearing most often, and how are you helping to tell the impact investing story?
Photo Credit: Tom Gores, Flickr