Impact investing has been around for at least a decade, depending on some definitions, and is still maturing with a number of challenges to consider, the author of this article says.
Commit to the journey not the headline
Many new entrants have had tendency to enter the market with a widely announced new investment strategy; though promotion of a previously unloved strategy has also been a tactic.
They should be applauded for joining the field as they frequently provide exciting innovations and new perspectives. However, the marketing of, and publicity around, new product launches can overtake the substance of the investment process and investments being made. As well, having one or two impact products while the rest of a firm’s investments remain blissfully ignorant of the impact they are generating, will soon be incongruent and unacceptable for investors.
For Barclays, we are reviewing the end-to-end journey of clients who want their wealth to have an impact. For example, leveraging our behavioural finance team, we’re researching motivations and preferences on impact. In addition to impact due diligence for products, we’re evaluating how impact can influence asset allocation or portfolio construction. We’re educating our advisors and supporting their discussions with clients. Importantly, we know this will be an ongoing process as the field develops.
To be effective at impact investing requires consideration of impact throughout the full investment process. Early innovators have spent many years developing and refining their practices. To be credible, newer entrants will need to make committed effort and spending to integrate impact.
Today most investing continues unaware or agnostic about what effect it has on the world. But investors increasingly want to know and influence the impact being made by their investing.
Larger, traditional players responding to this demand are adding momentum to the field’s growth. While the standards and norms are still being established, we have a duty to be more transparent and explicit our process, approaches, and integration of impact.
This will mitigate risks of impact- or green-washing damaging the field; as well, our own reputations and any trust gained back from clients, media, and society. It will also prepare the industry for the eventual failures of some investments; as underperformance (on either financial or impact terms) will be attributed to the particular rather than the practice.
In the end, though we should also have some perspective; with just over ten years since its christening, impact investing is still evolving. It needs time to further mature.
As a parallel, prior becoming a fundamental component of modern portfolio theory, “risk” still existed within investing; it took decades until it became part of accepted, and expected, investment practice.
Adding impact into how we invest has profound implications to this theory and our investment process – with the potential to make better investment decisions to both protect and grow assets and make a positive contribution to our world.
1, Global Impact Investing Network, Annual Impact Investor Survey 2018. Respondents collectively manage $228.1bn, which serves as the latest estimate for the ‘floor’ for the size of the impact investing market
2, Financial Times Investing for Global Impact 2018