Weekly Poll #6:
Should Impact Investing Become An “Asset Class”?
In a recent book I reviewed, the authors Antony Bugg-Levine and Jed Emerson ask an important question: should impact investing be considered an “asset class”, i.e., the view favored by some bankers or wealth managers in search for new business?
The other view is this: should impact investing otherwise not be considered a “transformational paradigm” by which all our investments should be subjected to their social + financial returns? Is that even possible, practical, or desirable?
Of course I have my own view, and I am interested to take that discussion further in the future but for now, I would rather love to get YOUR opinion which view you favor. Feel free to leave comments with your rationale.
Results are immediately visible as you click!
As always, please do feel free to share any suggestions for future polls you may find interesting to learn more about your fellow Good Generation comrades and their views on various topics. I’d be happy to pick up on some of these ideas in the future.
Interesting, it seems a 60/40 split has been stabilizing over the past few days in favor of the “NOT” asset class camp.
To keep things balanced, a little challenge question to those on the NOT asset class camp:
- If you really believe all investments can be judged on both social and financial dimensions, do you actually also believe a lot of them can hit that “blended value sweetspot”, i.e., which provide adequate social and financial return for you to keep your money in them? If not, would you really move your money out of these investments? And if you did, would you move more money towards “socially” or towards “financially” sound assets?
For those on the “asset class” camp:
- If you can separate “impact investment” or “do-good/socially beneficial investment”, how would you reconcile the “damage” caused by “non-impact” investments in your portfolio, while trying to balance it out with your holdings in positively “impact” investments? Is it just a matter of measuring the average between your foot in the proverbial oven and your head in the fridge?
I am in the “asset class” camp for two reasons. (1) I buy the pragmatic argument in the Bugg-Levine and Emerson book that unless it is considered an asset class, it will never get the infrastructure and people that it needs to thrive. (2) While there is a danger that if is an “asset class,” impact investing could be marginalized, I think that a shooting for a “transformational paradigm” runs a higher risk of being seen as so aspirational that it never succeeds. We need an asset class to establish a beachhead and go from there.
That leads to my answer to goodgeneration’s thoughtful question. I think investors need transparency so that they can make tradeoffs and create balanced portfolios. Some may accept higher returns in exchange for “tobacco risk” while others may accept lower returns if they know that the company only produces shade grown coffee. The market will then determine if impact investing is to be transformational. For myself, I won’t invest in tobacco companies but think that my ability to plan for my family’s future requires diversification that includes responsible single bottom line focussed companies.
John, thanks for your answer and for stating your view as “the minority” currently.
I love the view of “how should I support my family if I keep investing in companies that are great socially but don’t make me enough money? Well, I’ll have to do “less” social – and stay short of tobacco – in that case.”
Outstanding. In case you were interested, the “Impact Investing Forum” group on Linkedin, where I posted this poll, has a 100% anti-asset class fan base currently, so I would invite you to share your views (if you dare) or at least to learn about why others do not agree with this.
Try this link and join if you haven’t already: http://www.linkedin.com/groups?home=&gid=1913772&trk=anet_ug_hm
Now looking forward to the other camp’s views here (if they dare).
Best,
Thien
Will every impact investment hit the blended value sweet spot? Of course not! Does every exchange-traded investment beat the S&P 500? Does every VC fund return that promised 25% to investors?
We often talk about “market rates” when what we mean are target rates. Look at returns on non-traded instruments by vintage year, or the return distribution on traded instruments year to year, the delivered “market” rate varies significantly and that will be the case for double and triple bottom line products as well.
I just don’t see how impact investment can be an asset class when I can make impact investments across a range of existing asset classes! Would you consider “emerging markets” to be an asset class or an investment theme? Emerging markets securities were viewed as exotic and alternative 25 years ago, but they’re part of many mainstream investment strategies today!
Thanks for your thoughts and passion, Lauren!
As per your analogy with emerging markets, you seem to imply impact investing may be an investment “strategy”. If I read this correctly, would this perhaps indicate that “investing for impact” is just another approach to investing, similar to “value-based”, “growth-oriented”, “high-risk”, etc. and other terms in the traditional lexicon of financially focused investors?
You distinguished market and target rates thoughtfully, I believe.
But here is yet another question: is the main difference between traditional and impact investing that, while we don’t judge or try to convince more investors to adopt “value-based” vs. “growth-oriented” or “capital preservation” strategies, we DO in fact seem passionate about converting more people to the “impact focused” strategy? Or are you taking the stance that we just make sure this strategy gains broad awareness and stop short of trying to make more people adopt it?
Thien, for me, it really comes down to traditional strategy vs. proactive or sustainable. Value-based, growth-oriented and capital-preservation are all strategies developed for the traditional market. That market has always been single bottom line financial return. Social and environmental are “externalities” that can be ignored.
On the flip side, ESG, SRI and also Impact Investing, look at investment as something that creates positive or negative returns on financial capital, society and the planet. I do think there are a growing number of people who are passionate about the need to include all three bottom lines into our decision-making process, especially when those decisions relate to scarce resources.
I think many people are most concerned with getting investors to carve out 1-2% of their portfolios for “impact investment” so that the ‘industry’ has a good ramp for growth. I’d argue that this is short-sighted, but then again, I recognize that I am wildly optimistic to think that one day all investment might be filtered through a triple bottom-line sustainability lens!
To Thien and Lauren – I too am ‘wildly optimistic’ that all investments will soon turn to triple bottom line. As back-up, I look to demographics. The Boomers made money in a market with high numbers of investors and investments. Growth was their cohort’s driving force. We no longer have high numbers of investors entering/buying but we do have many selling and holding. This reduces the number of transactions and therefore volume. What drives stock prices ? – buyers and so, by sheer LACK of volume, it will be rare that ordinary people will make much money on the stock market from now on. Considering this, since profit and making big money have also reduced (proven), one might then assume that values-based and low risk investments will become the norm as Gen X’ers and Millenials indicate a preference for SRI.. Watch 5 more years and see if I’m right.
To be an asset class it needs to be an asset in the first place. That begs the question ; are social programs an asset, an from an investors perspective an asset is something that generates a return to the investor..
It’s like the beauty in art….it’s all in the eye of the beholder! Nonetheless social programs do generate returns both monetary and non monetary, economic and social. If these returns are “real” and transparent and provide a benefit to the investor then money will be attracted to the asset. If you can’t attract enough money then maybe you aren’t selling it the right way or that your asset isnt something that others appreciate the return it’s generating. That’s tough as all social programs are for a good cause but many are no good at what they do! Harsh but true. Unfortunately money talks so the bulk of the money is directed towards assets that promise high monetary returns. It’s been the case since creation. The real issue is we need more money to solve social issues, its not a case of if it’s an asset class or not. Whichever one attracts the most money that’s where I am going as the money allow us to impact our communities for the better. Interesting debate.
(Alcanne Houtzaager blogger at (Dutch) ImpactInvestingnews.blogspot says)
Why is everybody so hung up on investing in asset classes? What difference does it make? Doesn’t why and how you do things start with your mission & vision such as your investing goals which can be financial AND have an impact? And why not be aware of the impact as much as you would be about the financial return. II is adding outcome metrics and benchmarks to your returns. Isn’t that a good thing? Don’t you want to know waht effect you have?
Impact investing is a marketing concept which is doing pretty good because there is RUMOUR around the brand, though some call it a hype. The rumour/hype has the potential to lift socially responsible or sustainable investing from it’s present status of being-a-it-out-of-fashion and practice of exlusion focused (doing-no-harm & compliance) to doing good = best in class investments (scale!) & impact investing.
A broad definition of impact investing includes financial sectors that are moving serious money already such as renewable energy of which UNEP reported 211billion US investments in 2010. Based on a 100 years history. Now of course renewable energy is an interesting investment because it can save BIG money on energy costs & environmental damage so yeah there is some self interest, but who is going to dispute the value of this sector?
Microcredit did 80billion in 2010 (ING) and is an interesting investment because it gives ”nets” instead of ”fish” and served about a 100million clients. Also the microcredit succes gave birth to the concept of ‘financial inclusion” that is funding micro-mortgage, micro-insurmace, mobile financial services development and other new financial services with massive possibilities.
Why not invest in healthcare & pharma, higher education, free media, bridging the digital divide etc. or anything that improves peoples lives and open doors?