Impact InvestingDon't settle for less!
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Amongst the many hypes in the FinTech-sphere today, such as Blockchain, Artificial Intelligence, Machine Learning etc., there is one which has sneaked up on us – slowly but surely – and made the headlines of nearly every single major news outlet in the world: Ethical Investing or Impact Investing. But what is it and why is everyone talking so much about it?
Impact Investing – less brain, more heart
The general definition of Impact Investing is “investing that aims to generate specific beneficial social or environmental effect in addition to financial gain.” So, if you are an impact investor, you are actively looking for a possibility to make a positive impact on the society by investing in everything from a non-profit that benefits the community to clean technology enterprises.
So, Impact Investing is less about financial gains but more about societal impact. Where can your investment not only give you a fair financial gain but even more importantly, create the biggest impact for someone or something. And the more people that realise the societal and financial benefits of Impact Investing, the more the companies will start to engage themselves in being socially responsible.
“With their razor-sharp focus on the wellbeing of our planet combined with their great purpose-driven mindset, we believe that this young generation will take the lead in the Impact Investment movement and thereby gain more and more influence in the market.”
There is one particular group of people in today’s society to whom Impact Investing is highly appealing – the Millennial Generation. With their razor-sharp focus on the wellbeing of our planet combined with their great purpose-driven mindset, we believe that this young generation will take the lead in the Impact Investment movement and thereby gain more and more influence in the market.
Change of mindset
We believe that the hype is real. Impact Investing is here to stay, but for it work properly, it also requires a change of mindset of those people, who are doing the actual investing.
Today, many of their clients focus have shifted away from only making money – now they also want to be socially responsible
Traditionally, portfolio managers/wealth managers/traders in banks and large pension funds have had their performance and KPIs rated on the basis on how big their return on investments were. The more money they would make, the happier their clients were and the bigger the bonus they got at the end of the year. Today, many of their clients focus have shifted away from only making money – now they also want to be socially responsible. A thing that no longer only can be communicated in their annual CSR report but will need to be clearly shown by the investments they make – thereby forcing the people behind the investments to think different. Now their KPIs not only include how big their return on investments were but also how ethical these investments have been and what kind of impact they have made.
This change of mindset does of course take time and will not happen overnight and many of these asset managers will still have the return on investment as their main priority. But as younger generations start entering the labor market and take up more of these positions within banks and pension funds, this change of mindset is easier to implement, since the Millennial Generation have a much more purpose-driven mindset than the generations before them.
The “Just Do It” approach
We see the Millennials Generation as being one of the key drivers of the future of Impact Investing and their patterns of investing is worth a closer look.
Many of today’s Millennials can’t see the value in saving for pension, instead they prefer investing their money in areas that are important to them, right here right now. We therefore believe that we will see an increase in investments in individual companies that with their strong purposedriven businesses are taking on the challenge of making the world a better place. With their corporate activism and beliefs that speak directly to the mindset of the Millennials, this younger generation is adopting a “Just Do It“ approach when it comes to investing – just like they did with Nike.
Nike recently added the former and highly criticized Millennial NFL star Colin Kaepernick as the newest face of its “Just Do It” campaign. This resulted in a sharp decline in share price, but interestingly enough, a high increase in number of new investors. The world’s biggest Millennials brokerage app Robinhood saw in the days after the launch of the campaign, a total of 15.191 new investors adding Nike to their portfolios. Nike went from a 57th place to a 37th place, being the most popular stock in 3 days. The new generations expect brands to align with their moral and political views, meaning that if a brand “takes a side on a controversial issue”, it can easily strengthen its bond with its new and future customers within the younger generations.
Measuring Impact Investing
We started out by defining Impact Investing as a way of investing in order to “generate specific beneficial social or environmental effect in addition to financial gain” but how do we actually measure this “social or environmental effect”?
There are currently a number of ways to measure when businesses are “green” and are on the path of making the world a better place. A lot of the professional investors and portfolio managers use the official rankings of Morningstar Sustainability Rating or ESG rating to decide whether their investments on behalf of clients are making an impact in today’s society. But if we want to take the level of Impact Investing down a notch and focus on the individual and non-professional impact investor, a way to see the areas of greatest concern to most global business that want to make an impact, would be to turn to the 17 UN Global Goals, also called the Sustainable Development Goals (SDG).
The 17 SDGs do not provide the impact investor with names of actual companies to invest in, but gives a clear overview of the most grave areas where help is needed, in order to tackle the current global challenges the world is facing. So, by using the SDGs to get a snapshot of what defines a sustainable impact for potential companies is great, but what if you were able to match the actual SDG’s with the individual companies, so the individual impact investor could see which companies to invest in according to the chosen SDGs – that would take Impact Investing to another level.
If you find Impact Investing interesting, then make sure to follow us in order to read our next blogpost about why we think the UN Global Goals are very import tools for Impact Investing and what we can do with these goals.