Is Impact Investing the Way of the Future?


By Chris L. Meacham, CPA,

Cornerstone Wealth Management

The next generation of investors is estimated to inherit $41 trillion from the baby boomers, and trends are revealing that impact investing will not only be part of mainstream wealth management, but it may become the core-portfolio. With that in mind, some of the biggest names in the financial service industry – Morgan Stanley, UBS AG, The Goldman Sachs Group Inc., and JPMorgan Chase & Co. – have already made plans to establish or increase the activities around impact investing.

According to the Global Impact Investing Network (GIIN), impact investments are “investments into companies, organizations, and funds with the intention to generate a measurable, beneficial social and environmental impact alongside a financial return.” This idea appears to be gaining momentum and could be a large part of the future of financial planning. The World Economic Forum conducted a study in 2013 and found that next-generation investors consistently ranked impact performance as their primary investment criterion. Even ranking it ahead of return.

This movement parallels earlier studies taken of executives. In 2010, an Accenture survey revealed that 93% of corporate chief executives indicated that sustainability would be critical to the future success of their companies. And all of this momentum mirrors a much broader reshaping of global priorities. Out-of-control deficits, shaky financial markets, and staggering needs have shoved impact investing into the forefront. And with this comes new opportunities, challenges, and innovation in all sectors that has the potential to build a more prosperous future.

We have not yet seen a high demand for impact investing. But if these studies are correct, many investment advisers may face challenges when attempting to accommodate these emerging investment philosophies. For several advisers, profitability is partly driven by investing clients in a limited number of pre-set models. In order to stay efficient, these advisers cannot easily accommodate individual requests. Impact investing objectives can be very specific to an individual investor. Addressing these objectives with models would be a difficult task. It is becoming more and more important for firms to accommodate specific client preferences rather than trying to fit them into these pre-set models.

But regardless of the approach financial service firms favor, an impact investment program can be designed so that it signals important insights about investor preferences to the core wealth or asset management practices of a financial institution, irrespective of whether these investments help to meet institutional philanthropy or compliance mandates. Positioning impact investing in this way provides financial institutions and advisers with a way to respond to this new growing demand.

In the past, impact investing has been marginalized by mainstream financial institutions and often met with heavy skepticism. But things may be changing. It is hard to ignore the priorities of the next-generation investors and their $41 trillion. While the old model, as exemplified by Bill Gates and Warren Buffett, was to “make money and then give it back”, it appears that the new cultural inclination is to “do well


do good” simultaneously.

And whether you’re ready to get on board yet with impact investing or not, it looks to be the way of the future. Of course, this then only further emphasizes the importance of finding a financial adviser that believes in the approach of customizing client portfolios.