More and more people are getting into impact investing. According to the GIIN (Global Impact Investing Network), there were $114 billion in assets under management in mid-2017. Today, the number reached $228 billion. People invest their money in providing both social and environmental and financial return, and the industry is booming. And with nonprofit organizations, such as GIIN, you don’t have to be a multi-millionaire to get your chance to make a positive impact.
To get into impact investing, you can choose between 195 open-end funds and ETFs in the U.S. only. All of these funds practice some kind of sustainable investing, and many of them (81) have launched within the last four years (which doesn’t leave them with a proven track record you can rely on.) One of the most reliable funds according to The Street is TIAA-CREF Social Choice Bond which celebrated its sixth birthday.
The fund aims to emphasize social impact and ESG while delivering credit and interest-rate exposure. About half of their portfolio consists of corporate and government bonds filtered using ESG criteria. The other half consists of proactive social investments used for financing projects with measurable environmental and social impact in the areas of natural resources, renewable energy, economic or community development, and affordable housing. Due to the fast growth of issuance of social-purpose bonds (such as green bonds) they can increase the capital for social investments to 45% of their assets and maintain a good overall risk profile at the same time.
How do we measure the impact of investments aimed at improving the lives of vulnerable people? It is quite complex and challenging because we don’t measure only financial returns (like with traditional investing,) but the social and environmental impact. It requires a long-term commitment. For example, an investment that results in improved enrolment of boys in schools in rural Uganda drives long-term benefits, such as healthier families, improved employment rates, and increased tax revenues.
GIIRS (Global Investing Rating System) is a system for assessing the social and environmental impact of funds and companies with analytics and ratings approach similar to Capital IQ financial analytics and Morningstar investment rankings. It provides a tool that, through comparable and verified performance data, is intended to change investor behavior. GIIRS allows fund managers, companies, and entrepreneurs to serve their customers, workers, and communities better by raising capital based on the social and environmental impact of investors’ companies and businesses. It is a nonprofit organization that advocates impact investing and publishes data for public use.
Impact investing is almost always centered around an environmental issue, such as clean water, and a social problem, such as education and poverty. These are some examples of impact funds.
A subsidiary of Triodos Bank (Netherlands), Triodos Investment Management has been engaged in impact investing for over 20 years and has about $335 million in assets. Their primary areas of concern are organic farming, health care, sustainable real estate projects, arts and culture, and renewable energy. Their investments are across Africa, Southeast Asia, India, Europe, and South America.
BlueOrchard Finance (Switzerland) operates in Eastern Europe, Africa, Asia, and Latin America in more than 50 frontier and emerging market areas. Since 2001, they have provided microfinancing for more than 20 million entrepreneurs across the globe. They finance institutions and businesses with an emphasis on establishing education programs and food production, alleviation of poverty and hunger problems, and working on the issues around climate change. They have about $280 million in assets.
With $350 million in assets, Vital Capital Fund is a private equity fund that invests in projects and businesses that aim to enhance the quality of life in developing areas (mainly sub-Saharan Africa.) Their investments focus on healthcare, education, renewable energy, agro-industrial projects, and housing projects.
Elaine King, CFP is an expert on family enterprise consulting, creating strategies for wealth planning, family governance, and financial education programs.
