Advisor Perspective: Opening My Eyes To Impact Investing
February 22, 2017
Before my time here at Calvert Foundation, I spent most of my career as a financial advisor with some of the big-name financial planning firms and traditional wirehouses. I remember during my first year as an advisor sitting in a meeting with a wholesaler, who was pitching a fund that stayed away from the “sin” stocks (firearms, tobacco, and gambling). I thought, “Why would anyone do that? If these stocks are making money for clients, it doesn’t make sense to screen them out.” So quickly I dismissed the idea of impact investing.
Fast forward 15 years, and I was entrusted to head up advisor engagement here at Calvert Foundation. In this role I work with both financial advisors and family offices who are keen to channel investments to underserved communities. I’ve learned that investments can generate more than just a financial return; when they are helping build up communities, investments can generate a positive financial, social, and environmental return as well. Believe it or not, investing doesn’t always have to be concessionary. You can have your cake and eat it too.
So today as I sit as a former financial advisor- turned- impact investing advocate, let me provide you with some quick reasons why advisors might consider impact investments. Having been in your position myself, I understand your concerns and doubts. But hear me out.
1. Growing demand
There are numerous studies that all tout the strong demand for conscious capital. US SIF Foundation’s latest study suggest 33% growth in assets from 2014 within a market of almost $9 billion. That breaks out to 1 in 5 dollars invested in impact products.
Some of the reasons for this demand comes from changing demographics and wealth transfers, such as the rise of millennials, women, and minority groups, all who consistently demonstrate an interest in aligning their capital with their values. In addition, many corporate and institutional investors are looking for opportunities that drive cost savings and sustainable growth.
As impact investing grows in popularity, as an advisor, you’re going to want to be prepared to talk about these opportunities.
2. Competitive performance
This is one that comes up consistently, and is probably the biggest myth about impact investing.
Morgan Stanley’s Sustainable Reality study from 2015 provides many data points that dispel the concessionary return myth (that impact investments provide low returns), and even goes as far as saying that “investing in sustainability has usually met, and often exceeded, the performance of comparable traditional investments. This is on both an absolute and a risk-adjusted basis, across asset classes and over time, based on our review of US-based Mutual Funds and Separately Managed Accounts (SMAs)”.
Even here at Calvert Foundation, our Community Investment Note is offered at consistent interest rates of 1-4%, and in our over 20-year history we’ve maintained a 100% repayment rate on both principal and interest.
3. Expanding options
Perhaps a decade ago you may have had only a few ways to engage in impact investing. Today there are numerous ways to access impact investments - across asset classes, regions, themes and even product structures. From these options, you can focus your investments on specific causes or places that you care about, such as climate change solutions, microfinance, or women’s empowerment. Many of these options are now available online, or through brokerage firms, and are open to both accredited and retail investors.
On Vested.org you can invest in our Note for as little as $20 and target it to one of many causes and sector focuses available. With that investment you also get a regular report on the impact your money has helped to make.
My time at Calvert Foundation has highlighted to me the power of small but meaningful changes. By incorporating impact investing in your conversations with clients, you can help change the narrative around investing. You can continue talking about your clients’ returns, but you can also talk about the tangible difference their investments are making for communities.
It is an honor to be working at Calvert Foundation and being surrounded with people looking to change the world, and I firmly believe that financial advisors have a large role to play in this impact investing movement.