The Catholic Church made headlines recently when it announced 40 of its institutions would divest from fossil fuels, the largest faith-based divestment in history.
The fossil fuel industry isn't the only one seeing an exodus of investors. Divesting is happening on a broader spectrum, from arms manufacturers to private prisons to junk food. The question then becomes: where to find a values-aligned place to invest those newly freed-up funds?
Impact investing may provide the answer.
The mantra of the Divest-Invest movement is simple: get your money out of the bad stuff (tobacco, arms, fossil fuels, businesses invested in conflict) and put it to work in the good stuff (renewable energy, healthcare innovation, social enterprises.) Impact investing gets into the nitty gritty of seeking more of the good stuff — companies that are contributing to a better world, or at least having a net-positive impact, while also providing returns for shareholders.
History tells us that, like divestment, the impact investing movement will unfold in three waves: churches and environmental organizations become early champions, universities and public institutions gradually follow suit, then finally, the broader public begins to embrace the new way of doing things.
What does that mean for the retail investor (one who invests for themselves rather than on behalf of an organization and typically in much smaller amounts than an institutional investor)? With mainstream adoption a ways off yet, now is a great time to start looking at options.
Signalling that the first wave of impact investing is underway, the Catholic Church recently announced it would earmark $1 billion of its funds for impact investments, a move said to be inspired by the Pope but driven by humanitarian organizations within the church. A cash influx of this magnitude has the potential to transform the space.
It won't be long before universities are setting institutional impact investing standards.
With universities being the birthplace of so many innovations, and students being an engaged and vocal population, it won't be long before universities are setting institutional impact investing standards.
Community foundations and nonprofits are also among impact investing's first-wave adopters. The David Suzuki Foundation is a longstanding client of my investment firm, Genus Capital, which creates investment solutions to meet our clients' needs in a rapidly changing world. Having expressed a need to have its investments to align with its values, the Foundation became one of the driving forces behind the creation of our suite of Fossil Free funds. Four years later, the Fossil Free funds are the fastest-growing area of Genus' business.
Though impact investing's third wave is a long way off yet, foundations, nonprofits and wealthy families are already setting the stage. Millennials in this group will be the beneficiaries of a massive wealth transfer from their Boomer parents, and their concerns are greater and graver than simple wealth management. They want their money to go to work improving some of the world's most pressing social and environmental issues.
A whole economy has emerged to help wealth managers and foundations identify the top companies in the impact space and recognize the standard by which to measure them. These are also great information sources for retail investors.
Sustainalytics conducts exhaustive research and provides tools for bench-marking a company's impact, seeking out companies with innovative sustainability solutions that are gaining traction in the market. Other organizations provide valuable insights to impact investors, including the Global Impact Investing Network (GIIN); networks that connect social innovators with capital, like MaRS; and advisory firms like Purpose Capital, which recently published the premier Impact Investing Guide for Foundations to help executive directors and board members deepen their understanding of the space and make a social impact while maximizing their returns.
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Social and environmental issues have become impossible to ignore. We've long passed the time to think solely about profits. As the second wave of divestment movements gather momentum and the growth of impact investing accelerates, I'm encouraged to think about how investors, both retail and institutional, can drive change and contribute to a more sustainable world.
An earlier version of this article appeared in the November 2017 issue of Conscious Company Magazine
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