Impact investing is a rapidly growing investment sector.
Estimated in 2022 by the Global Impact Investment Network (GIIN) to already be worth over $1 trillion USD1, and predicted to grow by as much as 9.5% per annum over the next decade2, impact investing has become well and truly mainstream, and as a topic now features more prominently in both media coverage, and in client conversations.
But notwithstanding this stellar growth trajectory, and the undoubted increased community consciousness of environmental and social issues, impact investing remains widely misunderstood. Often assumed to be the same as ESG integration and responsible investing – the reputations of which have been somewhat tarnished in recent times due to concerns about politicisation, greenwashing, and subdued performance – impact investing is in fact its own distinct category of investment.
Characterised by a more robust focus on measurability than other categories under the ESG banner, and subject to financial assessment criteria every bit as stringent and comprehensive as traditional investments, impact investing arguably solves for many of the concerns surrounding ESG investing generally.
Impact investing is underpinned by the intention to generate positive environmental or social impact, alongside a financial return. Within this context, leading impact managers are focused on finding companies and opportunities that truly represent best in class solutions to challenges across areas including healthcare, education, sustainable cities, financial inclusion, and of course clean energy. So rich is the variety of investable impact opportunities, almost every client can be catered for.
But first, it is clear that adviser perspectives on Impact Investing need to be reset.
There remains a hesitancy on the part of some advisers to engage clients on the topic of impact and responsible investing more broadly. Much of this hesitancy – about performance, about compliance, about sensitive conversations – can be put down to false perceptions about client sensitivities, performance, and client risks. As this paper demonstrates, the unique characteristics of impact investing arguably solves for many of these concerns.
This paper is a companion piece to the Ensombl/T. Rowe Price podcast series on Impact Investing. Drawing on frontline insights from 5 Australian advisers operating in the impact space, we hope to reframe the understanding of, and attitudes towards impact investing, with the aim of giving advisers the tools and the confidence to make impact a key part of their offering.
Following the overall shape of the podcast series, this paper will aim to reset adviser understanding across 7 key misperceptions:
• Impact and Responsible investing are the same
• Impact investing requires the client to accept lower returns
• Impact investing lacks transparency
• Impact investing is all about the environment and climate change
• Sensitivities around personal values make for awkward client conversations
• Limited impact options hamper portfolio construction
• Impact investing carries a high risk of greenwashing
Technical Competence
Client Care & Practice
Regulatory Compliance & Consumer Protection
Professionalism & Ethics
General
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