Why 2019 is an Important Year for Impact Investing
Social impact investments (SIIs), ESG or impact investing look to achieve two things:
- Social goals
- Financial returns
The term, impact investing is relatively new and could be traced back to 2007 at the Rockefeller Centre in Italy, where several practitioners gathered to define a new investment approach, able to generate more than a financial return.
Since then, this investment approach has been discussed and utilized by governmental organizations, NGOs and financial institutions alike.
So, What’s the Buzz about in Impact Investing?
It has really transformed the investment management as well as philanthropy, especially over the last decade.
Investments can be geared towards a social initiative or overall social causes.
Now, you could create and customize your investment portfolios to reflect causes that you care deeply about.
Within your portfolio, there are underlying investments where you will find a corporate summary of their business practices as well as their impact summary outlining your investment into their fund or business will tackle that social cause.
Important Legislations
Then-US President Barack Obama signed into law the JOBS Act in 2012, which was a landmark law for allowing micro-investing removing the age old industry minimums to begin to invest.
In 2015, the United Nations came to agreement with 197 member-nations on attaining 17 sustainable development initiatives by 2030 — otherwise known as the “UN 2030 Agenda”.
This was key for a few reasons:
- It established a proper framework and guidelines for organizations, NGOs, central non-profits and governmental institutions among others to work to achieve these initiatives.
- Millennials have begun to realize that societal and world concerns will be at the forefront as they grow, directly affecting their livelihoods.
- Millennials and even Gen Z care about taking on initiatives to make a direct social impact, directly affecting their purchasing decisions.
- Since purchasing decisions are now more socially conscious, as a result, so are investing solutions.
- Millennials and younger generations want to invest in causes they believe in, which caused the financial institutions to start paying attention in offering these investment solutions.
- It matters, because Millennials are maturing and progressing in their careers and as older generations retire, business, marketing, purchasing and investing decisions will be heavily focused on this generation.
Growth
According to the US SIF, impact investing has grown 135% from 2012 to 2016, with an additional 38% between 2016 to 2018.
Impact Investing Myths
Impact investing was once thought of an investing approach where you would have to “sacrifice” investment returns for social impact, which is now being significantly debunked.
In fact, the MSCI KLD 400 Social Index (an index measuring socially responsible investments [SRI’s]) has beaten the S&P 500 Index by 0.5% points annually from May 1990 to March 2018, including dividends.
The projected growth in this investing approach will continue to rise in the next decade.
2019 marks the final year in the decade that will really test impact investing initiatives, and how willing institutions are in achieving those 17 sustainable development initiatives.
Originally published at www.quora.com.
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