January 28, 2022 / Insight from Jim Watt, Senior Wealth Advisor
“Impact investing” is something our wealth management group has been familiar with for a while, and it’s a growing area of curiosity for folks seeking more active involvement in their investments. So I thought it would be an appropriate theme to explore this new year, as many people resolve to try and have a more positive impact on the world around us.
A lot has changed in the last few years. The COVID-19 pandemic and
generational social, cultural and environmental movements have
increased people’s awareness of the relationship between how we live
and what we consume, our communities and our climate.
Impact investing, in a nutshell, tries to reconcile these interests by directing wealth managers to seek profits with companies or funds that are making conscious, measurable efforts to create positive social and environmental change. It’s about adding purpose and heart to the pursuit of profit.
One of the terms we often hear associated with impact investing is “ESG.” This stands for the environmental, social and corporate governance metrics that organizations use to measure their commitments and progress. A common misconception about ESG investing is that it is only a purely ethical or moral pursuit. It isn’t. Responsible wealth management doesn’t risk losses to ease someone’s conscience about the environmental impact of a particular investment.
What impact investing does offer, however, is options.
That’s what we know more and more people are seeking for their future: the option to make choices that align with their worldview. We have access to more information today than ever before to help folks find exciting and attractive opportunities for investment growth.
If we follow the money - as good wealth managers always do - we can see the markets changing. Public impact investment funds nearly doubled between 2013 and 2018, and the sector was estimated to control more than $35 trillion in global assets across five of the world’s top markets last year. What once began as a niche marketing opportunity has become mainstream. It captures a large part of the new and emerging technology market, as companies seek more innovative and efficient solutions to major global challenges.
But the popularity of ESG and impact investing brings some risks too. As it has become more mainstream, questions have cropped up about how companies and organizations present their data. No standards have yet been adopted internationally to evaluate the sustainability of any one investment over another. And there’s a phenomenon called “greenwashing” that investors need to look out for - organizations presenting sustainability initiatives in less than transparent ways.
This is an area where wealth managers can help. We keep abreast of the meaningful metrics and trends that could expose clients to too much risk. We identify opportunities that align with the impacts inventors want to make on the world, with reputable sources that offer tolerable risk in exchange for good returns.
There’s a lot that all of us can do to help make our communities and the world a better place in 2022. Impact investing is just one small part of it, but it’s as important to us as it is to you.