Impact Investing: What’s the Hype About?
Impact Investing is one of the hottest buzzwords in the wealth management industry today. Gaining traction from investors that want to be financially and socially aware, this type of investment has caught the industry by storm, creating a power struggle for advisers who want to be top performers while also taking into account the investment strategies their clients want to have.
Let’s take a step back and define exactly what impact investing actually means.
Impact Investing, termed in 2007, spawned from an approach that built intangible assets in conjunction with tangible assets (i.e. social good to financial return). The Global Impact Investing Network defines it as “investments made into companies, organizations, and funds with the intention to generate a measurable, beneficial social or environmental impact alongside a financial return.”
According to the BNP Paribas Individual Philanthropy Index 2015 more than 52 percent of philanthropists worldwide see impact investing as the most promising trend of 2015 because it signifies the ability to invest and build sustainable market solutions that pride themselves on working for the greater good of the world.
Investment in Firms that Seek To Be More than Just a Business
The linking of social impact with business is the driving idea behind the impact investing movement. According to the US SIF Foundation’s Report on Sustainable and Responsible Investing Trends in the United States 6.57 trillion dollars in total assets under management were identified using one or more sustainable, responsible and impact investing strategies. In the same study from 2012 to 2014 SRI investing enjoyed a growth rate of more than 76 percent, increasing from 3.74 trillion dollars in 2012. More than one out of every six dollars under professional management in the United States today – 18 percent of the $36.8 trillion in total assets under management – is involved in SRI.
One great example of impact investing at its finest is ice cream maker Ben & Jerry’s. The company took the initial run into impact investing by creating a progressive movement with its parent company, Unilever. Initially deemed a sell-out for its partnership with a corporate leader, many people thought the company would lose its “linked prosperity” mission, putting a lot of local businesses in jeopardy. However, within the terms of their contract, Ben & Jerry’s would be a publicly traded company putting Unilever as the controller of the financial and operational aspects of the company, while Ben & Jerry’s implemented its own leadership council for leading social missions and maintaining the brand’s integrity. Today Ben & Jerry’s is one of many companies that have joined the green movement and it continues to enhance its credibility with certifications such as B-Lab of Certified B-Corporations.
First Rate Joins the Impact Investing Mission
Impact investing and the B-Corp designation are not far from First Rate’s heart as we are also in the business of being more than just a business. Mirroring Ben & Jerry’s mission for “linked prosperity,” First Rate has accepted the B-Corp mantra to redefine success in business as “voluntarily meeting higher standards of transparency, accountability, and performance.” First Rate and Certified B Corps “are distinguishing themselves in a cluttered marketplace by offering a positive vision of a better way to do business.” Since 2010, First Rate has committed to being a B-Corp certified company making the declaration to join, support and identify with the movement of other businesses that want to serve more than just its shareholders, employees and clients. At the core of First Rate’s vision, mission, and purpose is First Rate Living: to love, give, serve, and enjoy, in both business and individually, supporting organizations locally and internationally – Youth With a Mission, Turner Twelve, and YMCA Arlington to name a few. Read more about B Corps and why it matters.
The Hype is here to Stay
Impact Investing can’t be ignored. As clients look to measure the returns by both societal and financial outcomes advisers will adopt practices to find better suited investments built to meet the needs of investors. The power struggle between being a top performer and investing in assets their clients want is very real, however advisers should jump on the wagon today as it looks like impact investing is here to stay.