The challenges and potential of impact investing

By Noa Gafni

I recently attended a talk on the “Future of Impact Investing.” The panelists spanned the spectrum of impact investing, representing Acumen, AllianceBernstein, and Salesforce’s Impact Fund. Their focus varied from building the market for off-grid energy to creating municipal bonds to improve local infrastructure and investing in socially impactful businesses. Across the board, the panelists agreed that impact investing is here to stay.

Impact investing refers to investments made into companies, organizations, and funds with the intention to generate a beneficial social or environmental impact alongside a financial return. It occurs across asset classes, including private equity/venture capital, debt, and fixed income. Depending on the goals of the investors, investments can target a range of returns from below-market to above-market rates.

The sector is growing. There were approximately $13.5 trillion ESG (environmental, social, and governance issues) assets under management in 2019, growing exponentially from $1.05 trillion in 2014. This trend is expected to continue as millennials inherit over $68 trillion from baby boomers by 2030. In the United States alone, millennials are anticipated to invest between $15-20 trillion in ESG assets.

As the business case for impact investing becomes clearer, traditional asset managers are coming on board. Blackrock’s CEO, in his annual letter, claimed that “we are on the edge of a fundamental reshaping of finance.” Goldman Sachs recently pledged $750 billion for investments in sustainable finance opportunities, addressing issues such the climate crisis and inclusive growth. State Street followed suit by preparing to take voting action at companies that are underperforming their peers in ESG.

At the panel this week, speakers shared their optimism around the rapid growth of impact investing. They also expressed a number of the current challenges facing the nascent sector. Integrity and authenticity will be key as more companies come on board. Additionally, questions arose around the meaning and measuring of “impact”, which is currently not well defined, regulated, or measured in a consistent manner.

In spite of its growing pains, impact investing represents an opportunity to engage businesses and individuals around “doing well by doing good.” At the Rutgers Institute for Corporate Social Innovation, we explore the many ways companies can earn positively impact their business while making an impact on society. Find out more about impact investing and other social innovation trends in our upcoming webinar, taking place on Wednesday, Feb. 12 at noon.

Noa Gafni is the executive director of the Rutgers Institute for Corporate Social Innovation.