Whether you call it socially responsible investing, sustainable investing or impact investing, the idea of investing in companies and products with social and environmental goals appears to be on an upswing.
With a flurry of new reports and data out in the past month and more on its way, a clearer picture is emerging about how investors, especially millennials, are thinking and what that means for companies and development goals in the future.
In a recent Morgan Stanley survey, 71 percent of active individual investors identified interest in sustainable investing, which was defined as investing in companies that have positive social and environmental impacts while maintaining competitive returns.
But the degree to which this statistic will translate to increased sustainable investing remains unclear, in part because there is still a gap between that interest and action.
The Morgan Stanley survey highlighted this divide. While 72 percent of investors identified companies with a focus on sustainability as performing better, more than 50 percent said they believe they’d make a financial tradeoff to achieve greater social or environmental impact.
“It’s an interesting perception gap,” said Audrey Choi, CEO of Morgan Stanley's Institute for Sustainable Investing. “On the one hand, people believe it’s good business, but they haven’t yet completely internalized that the benefit will flow as investors.”
The notion that an organization with a social policy or development goal must also carry a charitable overtone is pervasive. More evidence about the success and profitability of these types of investments can help combat it.
Just this week, Morgan Stanley released a report about sustainable investment returns to correct some of these assumptions. Several key findings include that investing in sustainability has usually met or often exceeded the performance of comparable investments, that the mutual funds examined had equal or higher median returns than traditional funds in 64 percent of the periods examined and that corporate investment in sustainability was linked to better stock prices.
Part of building that knowledge base is also analyzing what’s out there, which is what the Global Impact Investing Network did recently in it’s report about the more than 340 funds in its ImpactBase database.
Many findings in the report confirmed existing knowledge, but the breadth of the field it demonstrated might surprise some. It showed a wide range of investment opportunities with funds across asset class types, themes, geographies, rates of return and a diverse set of ways investors can participate.
The report also provides further evidence proving the potential for competitive returns. The majority of the investment products in the GIIN’s ImpactBase database seek market rate returns, according to the report.
Of those funds, 76 percent target family offices and high net worth individuals and 71 percent appeal to foundations when fundraising. Only 17 percent target retail investors, according to the report.
“If there were any doubts about the availability of capital” this report should help dispel them, said Amit Bouri, GIIN CEO. “There are a significant number of players looking for deals who represent a significant amount of capital.”
There is still work to do and ways the development community can help support the industry, particularly in creating enabling environments for business and investment and a continued commitment to providing grant capital, capacity building support for business owners and products like political risk insurance.
But the future points toward growth. Many of the funds in the ImpactBase database are still raising capital, investor interest is building and there are more products across investment types and demands.
A generational shift is also underway. Millennials are twice as likely to invest in companies that target positive social and environmental outcomes and also twice as likely to withdraw their funds from those who do not, according to the Morgan Stanley survey.
“This is a clear clarion call to leaders that their social and environmental impact is increasingly seen as part of their value proposition,” Choi said. “As you have broad-based investors increasingly focused on sustainable investing as a priority for them and how they choose investments, that’s really going to influence corporations.”
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