Impact Investing Can Increase Financial Literacy
As women, Millennials and Gen Z increasingly take charge of their personal finances, impact investing is becoming more than a buzz word or trend. Individuals in these demographics are increasingly interested in putting their money where their mouth is perhaps more so than other age groups or demographics. These groups want to invest in things with which they can connect with and are interested. Impact investing fills this niche on many different levels and engages groups of people previously not interested in their own personal finance. The ability to direct money to products and investments targeting causes and goals that align with their value system is appealing and engaging.
What is impact investing? Impact investing also is referred to as SRI (socially responsible investing) or ESG (environmental, social and governance) investing. In short, it is choosing to invest in products, funds, real estate, private companies, etc. that not only have the goal of making a monetary return, but also fulfilling some social, environmental or policy goal. For example, last March, the Royal Bank of Canada launched its RBC Vision Women's Leadership MSCI Canada Index ETF. This Exchange Traded Fund aims to replicate the MSCI Canada IMI Women's Leadership Select Index, which “tracks companies based in Canada that have demonstrated commitment to gender diversity as part of their corporate social responsibility (CSR) strategy.” This is but one of many examples of how an investor can direct their investment funds to companies that championing or working towards causes that mean something to them. As reported by the World Economic Forum, the impact market expanded five fold between 2013 and 2017 to an astonishing $228 billion globally.
For many companies and investors, impact investing ties together with the UN’s Sustainable Development Goals developed in 2015. The UN’s Sustainable Development Goals are the “...blueprint to achieve a better and more sustainable future for all.” They are designed to help address a wide variety of worldwide challenges including:
No. 1 - No Poverty.
No.2 - Zero Hunger.
No. 3 - Good Health and Well Being
No. 4 - Quality Education
No. 5 - Gender Equality
No. 6- Clean Water and Sanitation
No. 7 - Affordable and Clean Energy
No. 8 - Decent Work and Economic Growth
No. 9 - Industry, Innovation and Infrastructure
No. 10 - Reduced Inequalities
No. 11 - Sustainable Cities and Communities
No. 12 - Responsible Production and Consumption
No. 13 - Climate Action
No. 14 - Life Below Water
No. 15 - Life on Land
No. 16 - Peace, Justice and Strong Institutions
No. 17 - Partnerships for the Goals
Many companies are now indicating which of these Sustainable Development Goals they are helping to address or pursue in their publicly available corporate material. For example, CH Hansen, a Danish global bioscience corporation and Corporate Knights Magazine’s recent #1 placeholder on its 2019 Most Sustainable Companies list, reports that 81% of its gross revenue directly supports the UN Sustainable Development Goals. It specifically indicates that it made strides in relation to Goals 2, 3 and 12 with its business practices over the past reporting year. This detailed reporting is commendable and resonates with many new investors in a manner not previously appreciated. The UN Global Compact is currently working on a best practices framework for companies choosing to report on their Sustainable Development Goals initiatives.
Given the interest around impact investing, various organizations have begun the process of developing a framework around how impact investments will be measured. One of the most influential bodies undertaking this task would be the International Finance Corporation, World Bank Group (the IFC). In October 2018, the IFC provided a draft set of 9 Operating Principles for Impact Management for review and consideration. The Operating Principles are implemented with “... the intent to contribute to measurable positive social, economic, or environmental impact,1 alongside financial returns.” A cohesive framework in which to examine impact investments is required to establish some benchmarks for which to measure which qualify in any meaningful manner and which do not.
Impact investing is exciting for many people without previous exposure or interest in investing. Why? Because it allows one to get involved in the companies behind the stock or fund and see what those entities are doing to better the world. That is an engaging premise to a wide swath of people that previously held little interest in their own personal finance. On that basis alone, it holds great potential in changing the face of personal finance and individual financial literacy.
*** Top photo by Taylor Simpson at Unsplash