In his keynote address at a 2013 G8 Conference, British Prime Minister David Cameron voiced his support for impact investing, believing that European governments should do more to support socially responsible investments. The World Economic Forum has predicted the impact investment market will grow to $500 billion by 2020. Other analysts place the figure closer to $1 trillion.
Despite all the enthusiasm surrounding impact investing, many of my colleagues in the field of financial planning remain uninformed. According to a CFA Institute report, 66% of advisers admitted to being unfamiliar with the practice. I believe the continued growth of this worthy field will depend on educating financial advisers and investors.
A major reason for this expected growth is the impending transfer of wealth from parents to their children. Millennials and Generation Xers stand to inherit between $30 and $40 trillion dollars from the baby boomer generation. The magnitude of this wealth transfer is unmatched by previous generations.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Beyond simply the size of the inheritance, Millennials have different priorities than the generations before them. Younger investors seek investments that yield a social return, as well as a financial one. When asked about the primary purpose of business, 36% of Millennials selected “Improve Society” as their answer. Other answers included “Enable Progress,” which was chosen by 25% of participants, and “Create Wealth,” which was picked only 15% of the time (Deloitte Survey, 2014).
In the past, investments in emerging or non-traditional markets were viewed as exceedingly risky. A lack of transparency and available information discouraged investors from exploring opportunities abroad. The digital age has changed that. Enhanced connectivity now makes it possible for investors to act wisely when investing in emerging markets. Moreover, the credit ratings in many developing nations—such as Mexico and Brazil—have improved as governments exercise greater fiscal responsibility. This development creates more opportunity for impact investing.
Investing for gender equality is rapidly becoming one of the most popular forms of impact investing. The goal is to promote gender parity and personal empowerment through debt and equity investments.
There are three basic types of gender-equality investments: supporting female-owned enterprises, funding companies that offer products and services for women, or expanding employment opportunities for women. Organizations such as the Calvert Foundation and Root Capital have launched initiatives to promote gender-focused investments. To quote Jackie VanderBrug, managing director of Criterion Ventures: “Women are key assets in combating poverty, building their communities, and creating new pathways to a more just and sustainable world. Investing in women’s education, economic welfare, health, and overall well-being produces powerful results that benefit families, communities, and entire societies. When women become economic agents and leaders, social change accelerates and returns multiply.”
Foreign investment in developing countries dropped 16% in 2014. This has resulted in a $2.5 trillion funding gap, which has made it nearly impossible for these countries to cope with chronic problems such as food and water shortages, limited healthcare access, and failing infrastructure.
Similarly, the clean-energy sector is experiencing a major capital shortfall. The International Energy Agency calculates that an additional $36 trillion will be needed over the next 35 years to curb the most extreme effects of climate change.
Since philanthropic activity alone cannot bridge the gap, I believe advisers must educate themselves and their clients on impact investing. Our globalized economy has made it possible to engender social change and produce a healthy return on investment. Whether we can find solutions to the most pressing global challenges will depend on the commitment and foresight of investors.
Marguerita M. Cheng is the Chief Executive Officer at Blue Ocean Global Wealth. Marguerita is a spokesperson for the AARP Financial Freedom Campaign and is often featured in national publications. As a CFP Board Ambassador, Marguerita helps educate the public, policy makers, and media about the benefits of competent, ethical financial planning. She proudly serves on the FPA National Board of Directors and is a frequent speaker on on financial planning, Social Security, diversity, elder care, and retirement.
This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.
-
-
Top Money Market Accounts 2023
Money market accounts are interest-bearing accounts at a bank or credit union, typically paying high interest rates. Here are the best right now.
-
Stock Market Today: Stocks Brush Off Deutsche Bank Troubles
Troubling financial sector headlines kept stocks lower for most of the day, but the major indexes pushed higher by the close.
-
Being Rich vs. Being Wealthy: What’s the Difference?
It’s all about where you put the zeros — having a large bank account isn’t the same as having zero regrets and focusing on what brings you joy.
-
I Wish I May, I Wish I Might: Estate Planning’s Gentle Nudge
Contrary to what you might expect, using precatory language such as ‘I wish’ or ‘I hope’ can play an important part in three estate planning objectives.
-
Donor-Advised Funds: A Tax-Savvy Way to Rebalance Your Portfolio
Long-term investors who embrace charitable giving can easily save on capital gains taxes by donating shares when it’s time to get their portfolio back in balance.
-
Five Investment Strategies to Focus on in 2023
Planning instead of predicting, reducing allocations of illiquid assets and having a diversified portfolio are good ways for investors to play defense this year.
-
Investors Nearing Retirement Show Patience With Markets
Despite last year’s upheaval, many investors are sticking with long-term plans and tightening their budgets instead of moving money out of stocks and bonds.
-
For a Concentrated Stock Position, Ask Your Adviser This
There can be advantages to having a lot of stock in one company, but ‘de-risking’ can help avoid some significant disadvantages.
-
Trusting Fintech: Four Critical Moves to Protect Yourself
A few relatively easy steps can help you safeguard your money when using bank and budgeting apps and other financial technology.
-
Four Ways Women Can Take Control of Their Financial Health
Adjusting for life events, taking advantage of workplace benefits and preparing for caregiving can make a big difference in your financial future.
