Private Investors Are Emerging as the Next Catalyst of Impact Investing
In the first article of our four-part series on Sustainable Investment in 2020, we covered the surge in ESG investing that has been sparked by recent current affairs including the Covid-19 crisis, as well as the growth drivers we foresee in the Canadian impact investment market as a result of the current geopolitical climate. In this second part to the series, we are diving deeper into one such growth driver: the untapped potential of private investors in the impact space.
Unlike large asset managers like BlackRock and Morgan Stanley, who have paved the way for sustainable investment at the institutional level, we believe that individual accredited investors remain underserved from an impact investing perspective, despite being uniquely positioned to create the most impact while still observing competitive returns. We believe that private investors, high net worth individuals investing on their own or their family’s behalf, have distinctly different priorities than institutional or corporate investors when determining how and where to best deploy their capital.
Business leaders such as Paul Polman, former CEO of Unilever and Chairman of the Better Business Better World Commission, as well as Larry Fink, CEO of BlackRock, have long advocated for the business case for sustainable investing, with the chief argument being longevity, resilience in times of economic uncertainty, and increased profitability over the long-term. According to Forbes, “BlackRock has been very clear to say that its efforts on climate change are less about saving the planet and more about maximizing returns for investors. In this respect, its main reason for reducing the portfolio weights it assigns to fossil fuel firms stems mostly from its conviction that these firms will earn inferior returns in the future [1].
While institutional investors and corporates may be motivated by positive public goodwill in the short-term and sustainability of returns over the long-term, we believe that private investors have a different set of priorities. Some priorities which resonate stronger with private investors including ensuring a positive legacy, supporting lifelong causes, and securing wealth for future generations. A private investor with a vision and commitment for impact is a truly powerful change agent, one that is uninfluenced by any shareholders or shackled by any institutional hurdle rate or pre-existing investment criteria. With personal commitment to achieving both strong financial outcomes and tangible impact, we believe that impact-driven private investors are the most powerful investor for impact investing.
Historically, private investors have distinguished between investment and philanthropy, using the former to achieve financial returns and the latter to achieve impact. Impact investing offers the opportunity to achieve both goals through one channel simultaneously enabling investors to safeguard the health and well being of society, the planet, and of the family, for future generations.
In 2018, Bank of America conducted a study of high net worth philanthropy in the United States, which found that only 42% of wealthy donors believe that their charitable giving is having the impact they intended [2].
They also found that wealthy donors are interested in supporting a wide variety of causes and less than half of wealthy donors have a strategy for their donations. Impact investing presents an attractive solution to many of these challenges. As financial organizations first-and-foremost, impact funds come with a professional rigor to the assessment of opportunities, deployment and management of capital, and engagement with shareholders that charities often cannot match. Investors can select funds that align with their personal values and play an active role in the management of their investment, ensuring confidence, and a hands-on role in the impact being created. Recognizing the catalytic potential of private investors in the impact space, the way impact funds can add the most value is to source, vet, and present viable triple-bottom-line opportunities to the investors that want to make a difference.
Did you know
Impact investing does not mean sacrificing returns. In 2019, the iShares ESG MSCI USA ETF has outperformed the S&P 500 by over 4%. Similar deltas can be expected from impact investing products in the private equity and venture capital space.
- CNBC, 2020
If you are interested in learning more about what True North is doing in the impact investing space, please contact Kai Chen, Fund Manager (kai@truenorthimpact.com).