Investing in Corporate Social Responsibility Yields Dividends
In two weeks, hundreds of delegates across different industries will converge on London for the Impact Investing Summit 2018. The annual conference is just one sign of increasing interest by investors and consumers to put their money where it can do good. In fact, one of the planned keynotes is titled, Impact Investing is the New Norm.” Addressing ethical expectations is becoming a strategic advantage. Research by British bank Barclays supports the trend. In a 2018 poll, the bank found a 13 percent rise in the number of investors under the age of 40 who had made an impact investment—from 30 percent in 2015 to 43 percent this year. While investors over age 50 haven’t yet made the leap to impact investing—only 9 percent of 50-59 year-olds and 3 percent of 60 and older—the fact that younger generations with less cumulative wealth are already targeting socially and environmentally responsible investments bodes well for the future of impact investing.
What is Impact Investing?
Impact investments are defined as investments that deliver positive social and environmental impact while still generating positive financial returns. In 2014, Abigail Nobel, Head of Impact Investing at the World Economic Forum, told Harvard Business Review that “Impact investing is about strategy. A lot of businesses have pursued social responsibility more out of their marketing departments or as some sort of charitable donation. Not only are they not capturing the full value because it doesn’t create that virtuous cycle, it’s just not sustainable.”
The Global Impact Investing Network (GIIN) identifies several core components of impact investing:
- Intention—Investors direct investments to organizations that have Environmental, Social & Governance (ESG) or Corporate Social Responsibility (CSR) programs that deliver measurable benefits.
- Expectations of Return—At a minimum, investment should deliver a return of capital, but the optimal performance is positive financial returns.
- Range of Asset Classes—Investments can be made across different asset classes, including fixed income, venture capital, private equity and cash equivalent.
- Measurable Impact—Transparency is critical, enabling investors—and the funds they invest in—to stay accountable to their social, environmental AND financial commitments.
This new focus is a shift from the traditional approach of addressing social and environmental issues through charitable gifts from philanthropic organizations and individual donors. And the benefits are rolling in. According to GIIN's 2017 Annual Impact Investor Survey , portfolio performance across funds focused on impact investing are meeting or exceeding expectations—both in terms of positive impact AND financial returns—among 91+ percent of respondents. And the returns from impact investing are increasing. GIIN reports that the average growth rate across 61 impact investors saw average asset growth of 18 percent annually.
This corresponds with news we reported in a previous blog post. The UN Global Sustainability Index Institute (UNGSII) fund investing in companies committed to its Sustainable Development Goals (SDGs) achieved even higher returns—27.63 percent—in its first year. Do you have the right programs in place to attract impact investors?