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January 24, 2019

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The Importance of Impact Investing for Investors

March 7, 2019

As our values as a society have shifted to take more consideration of the environmental, social, and ethical impacts of what we do, impact investing has grown in influence and discussion. Impact investing still has a long way to go in terms of achieving mainstream attention as Morgan Stanley’s Sustainability Report estimated that only 23% of investors in 2017 were very interested in sustainable investing.  As a result, it is important to show why more investors should know about it and why it is important right now.

 

 

Sustainability and impact goals are becoming needed for the competitiveness of a company. Nielson explains that 66% of global respondents were willing to pay more for sustainable products, and that over 50% of their spending habits were influenced by sustainability factors. It is apparent that the trend towards sustainable consumerism will continue to grow especially as the economy becomes more dominated by younger consumers who value sustainability. Grace Farraj explains, “Brands that establish a reputation for environmental stewardship among today’s youngest consumers have an opportunity to not only grow market share but build loyalty among the power-spending Millennials of tomorrow.” As consumer demands shift towards desiring and requiring companies to become sustainable, impact investing will become ever more important as businesses and investors will have to address the needs of the consumer.

 

By investing in sustainability today, investors will not only be able to capitalise on the current and future demand, but they may also help their investment’s long term stability and growth. According to the Financial Times, positive ESG (Environmental, Social, and Governance) ratings have a positive or neutral impact on investment return. Indexes such as the MSCI KLD 400 Social Index outperformed the S&P 500 by 0.5% annually since 1990 along with higher dividends (Bloomberg 2018). Some suggestions for the cause of this include that these types of investments are less likely to be affected by environmental disasters along with less scrutiny from regulators (Financial Times 2018). Therefore, sustainability in one’s investments has the potential to bring them more benefits over the long term.

 

According to the UN’s World Investment report, there is an annual shortage of $2.5 trillion in funding for projects such as infrastructure, education, health, and climate change mitigation. It goes onto explain that private sector contributions investment will play an important role in bridging this gap that governments and organisations have failed to address. The Business Commission also estimates that there are at least $12 trillion dollars’ worth of investment opportunities possible which follow goals of sustainability and social impact. As a result it is critical that more people and investors know about impact investing, as not only will it help provide a better future and provide support that is needed right now, but it will help bring investors awareness about possible profitable investments and develop the economy as a whole.

 

Research and data shows that changing consumer demands will result in sustainable companies better being able to grow, that there are opportunities in the range of trillions of dollars related to impact investing, and that impact investing may lead to higher returns along with more stability. Therefore, the growing importance for investors to take advantage of impact investing along with the need for addressing social and/or environmental issues shows the vast potential of impact investing.

 

 

 

References:

 

Fao.org. (2019). Challenges and opportunities of foreign investment in developing country agriculture for sustainable development. [online] Available at: http://www.fao.org/3/a-i4074e.pdf [Accessed 29 Jan. 2019].

 

Haefele, M. (2018). Sustainable investing can propel long-term returns | Financial Times. [online] Ft.com. Available at: https://www.ft.com/content/292ecaa7-294c-3a4b-bde6-a7a744cb85a9 [Accessed 29 Jan. 2019].

 

J. Hoffman, A. (2018). The Next Phase of Business Sustainability (SSIR). [online] Ssir.org. Available at: https://ssir.org/articles/entry/the_next_phase_of_business_sustainability [Accessed 29 Jan. 2019].

 

Kaissar, N. (2018). Investing in Virtue Is Hard When So Few Companies Measure Up. [online] Bloomberg.com. Available at: https://www.bloomberg.com/opinion/articles/2018-04-17/investing-in-virtue-is-hard-when-so-few-companies-measure-up [Accessed 29 Jan. 2019].

 

Morganstanley.com. (2017). [online] Available at: https://www.morganstanley.com/pub/content/dam/msdotcom/about-us/giving-back/sustainability-at-morgan-stanley/2017_MS_Sustainability_Report.pdf [Accessed 29 Jan. 2019].

 

Nielsen.com. (2015). The Sustainability Imperative. [online] Available at: https://www.nielsen.com/us/en/insights/reports/2015/the-sustainability-imperative.html [Accessed 29 Jan. 2019].

 

Nielsen.com. (2019). Green Generation: Millennials Say Sustainability Is a Shopping Priority. [online] Available at: https://www.nielsen.com/us/en/insights/news/2015/green-generation-millennials-say-sustainability-is-a-shopping-priority.html [Accessed 29 Jan. 2019].

 

Unctad.org. (2014). Developing countries face $2.5 trillion annual investment gap in key sustainable development sectors, UNCTAD report estimates. [online] Available at: https://unctad.org/en/pages/PressRelease.aspx?OriginalVersionID=194 [Accessed 29 Jan. 2019].

 

Image from: https://www.netimpact.org/careers/what-is-the-difference-between-socially-responsible-investing-and-impact-investing

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