“Yes, profits are important, but so is society. And if our quest for greater profits leaves our world worse off than before, all we will have taught our children is the power of greed.”
--Marc Benioff, Salesforce founder and co-CEO
Impact investing is experiencing phenomenal growth, driven to a large degree by Millennials (those born between 1980-’94) and Gen Zers (those born between 1995-’15), who want their investments to do more than just make money.
That said, it isn’t just young investors that have spiked impact investing’s growth. The number of impact investors is rising across all demographic categories. These impact investors have also been described as personal values investors, in that they want their investments to be in alignment with their personal values. In doing so, their intent is to make their investment portfolios a statement of who they are and what they stand for.
The impact-investing sector has doubled in size the last two years, according to Global Impact Investing Network’s 2019 Report on Sizing the Impact Investing Market. According to the same report, impact investors say their impact investing allocations will continue to grow.
Investments that take into consideration environmental, social and governance (ESG) factors now stand at $12 trillion, according to US SIF’s 2018 Report on U.S. Sustainable, Responsible and Impact Investing Trends. That’s approximately 1 in 4 dollars of the $46.6 trillion in total assets under professional management in the U.S. This represents a dramatic 38 percent increase over 2016.
The US SIF report—first compiled in 1995—is the most comprehensive study of sustainable and impact investing in the United States. From the first report compiled 25 years ago, when assets totaled just $639 billion, to today, the sustainable and responsible investing industry has grown 18-fold and has matured and expanded across numerous asset classes.
The future looks even brighter for impact investing when you consider that 95% of Millennials are interested in impact investing and that by 2025, Millennials are expected to make up about 75% of the American workforce. In addition, according to a study by Coldwell Banker Global Luxury, by 2030, Millennials will hold five times as much wealth as they have today and are expected to inherit over $68 trillion from Baby Boomers over the next 30 years in what’s been called “The Great Wealth Transfer.” Those numbers indicate the potential for exponential growth in the impact investing sector over the next decade.
Millennials and Gen Zers have been the driving force behind “The Era of the Conscious Consumer.” Conscious consumers typically shop organic, and buy clothes, cars and other products from companies with social and/or environmental objectives. Similarly, “conscious investors” are increasingly letting their personal values drive their approach to investing. They are also demanding more transparency from their investments. As such, “The Era of the Conscious Consumer” is evolving to include “The Era of the Conscious Investor.”
Despite this strong growth in the impact-investing sector, financial advisors have been slow to recognize and appreciate the impact-investing growth trend. Only 43% of financial advisors say impact investing is an important part of their financial planning practice today, according to Eaton Vance’s Advisor Top-of-Mind Index.
On the other hand, large institutions and private foundations have adopted impact investing approaches at a faster rate than independent financial advisors. They have been key drivers of growth in the impact investing space as they are increasingly adopting more responsible investment strategies.
Once financial advisors become more aware of the interest many of their clients have in impact investing – especially as more and more Millennials and Gen Zers enter the investing marketplace -- and understand the potential impact investing represents for their practices, they will undoubtedly become more adept at presenting impact investing opportunities to their clients. The result will be another boost to the impact investing sector.
What about the issue of financial risk with impact investments?
The biggest concern most investors express regarding impact investing is a fear that impact investments might not provide a competitive financial return. They are concerned that “doing good” might be too costly for companies and negatively impact their financial performance.
In fact, two-thirds of investors report being worried that impact investments might not offer competitive returns and that investing sustainably could require a financial tradeoff. U.S. asset managers have said that they view this perception as one of the greatest challenges to sustainable investing.
However, a look at the research in this area reveals a picture in which impact investments -- investments in companies that weigh social, environmental and financial objectives equally -- have performed as well financially as traditional investments, if not better.
A 2014 study conducted by CDP Global 500 Universe found that S&P 500 companies that are leaders on climate change generated an 18% higher return on equity (ROE), lower volatility of earnings, and 21% stronger dividend growth than low-scoring peers.
Similarly, a highly regarded 2016 study, led by George Serafeim of Harvard Business School, found that stocks of companies with the strongest performance on ESG issues outpaced those with poor ESG performance.
In addition, a Morgan Stanley study compared the performance of sustainable funds with traditional funds from 2004-2018 using Morningstar data. A total of 10,723 funds were studied. Researchers found that sustainable funds provided returns in line with comparable traditional funds while reducing downside risk. During a period of extreme volatility, they found strong statistical evidence that sustainable funds are more stable. The study found that sustainable funds experienced a 20% smaller downside deviation than traditional funds. This was a consistent and statistically significant finding.
As such, considering ESG criteria can help investors avoid companies that might pose a greater financial risk due to their less-than-ideal environmental practices.
From a corporate management perspective, CEOs and company directors are now realizing that ESG issues are strongly associated with financial performance. They understand that more and more consumers -- especially younger consumers -- are demanding that the companies they do business with perform well on ESG criteria. As such, they are increasingly placing a greater emphasis on ESG performance at their companies.
The bottom line is, companies that utilize ESG criteria in their management practices are typically well-managed companies and as a result consistently have better financial performance.
It turns out that “doing good” is also good business.
The CoPeace approach to impact investing
The root of many of our social and environmental problems in the world today is the quest for profit-at-all-costs (PAAC).
CoPeace seeks to mitigate that unfortunate reality with investments in companies whose specific mission is to work to solve social and environmental problems, while still being profitable and providing competitive returns to investors.
CoPeace is a first-of-its-kind holding company that only invests directly in impact companies. Unlike most direct investments, virtually anyone can invest in CoPeace -- not just wealthy, accredited investors. As such, CoPeace is changing the impact investing landscape so smaller investors can share similar footing with accredited investors when it comes to direct impact investing.
To that end, CoPeace has developed a unique direct public offering (DPO). In effect, CoPeace is democratizing the investment process by providing an innovative and inclusionary platform that allows impact investors, of all demographic types, unprecedented access to impact companies.
The CoPeace mission is to impact the lives of global citizens through investments in companies that are working to make the planet a more equitable, safer and healthier place to live. Furthermore, the company’s intent is to be part of the growing transition from traditional -- “shareholder value only” -- investing to impact investing, in which social and environmental performance is considered on par with financial performance.
CoPeace is extremely selective in choosing which impact companies the company invests in. Due to a rigorous screening process, CoPeace only invests in about 2% of the companies it analyzes.
It’s also important to note that CoPeace is registered as a Public Benefit Corporation PBC), and is also a Certified B Corp®. Only about 400 companies, worldwide, have achieved both a PBC and B Corp designation. This reflects CoPeace’s high degree of social consciousness.
A new approach to investing and capitalism
“Impact investing is an entry point to an exploration of the purpose of capital because it begins with our understanding that how we presently think about capital’s place and purpose in our world is not adequate nor enough to confront the challenges before us, as a planet and as a people.”
-- Jed Emerson
Historically, there has been a common misconception that profits and positive impact on society are mutually exclusive. To a large degree, this is because the current global capitalism structure – including the investment sector -- prioritizes profits over people and planet.
Impact investing offers a different option, one in which the environment and society are on equal footing with profits. As such, impact investing is not only changing the traditional investing world, but also helping to transition capitalism from a profit-at-all-costs mindset to a New Capitalism mindset, in which an equal emphasis is placed on social, environmental and financial performance.