Market Decode: Is Impact Investing Right for You?

Discover how you can combine a desire to have a positive impact on the world with investing for your future

THE IDEA OF IMPACT INVESTING has been around for several decades, but it used to mainly involve “negative screening,” or avoiding investing in companies and industries whose products or practices do not meet investor standards. It has changed a lot since then; today, impact investing can be thought of as investing in companies, organizations and funds with the intention of generating social and environmental impact alongside a financial return.

As of 2018, more than 1,700 investment funds had incorporated environmental, social and governance (ESG) factors into their investment process, up from just 55 funds in 1995.1 And more and more companies are responding to growing investor interest. As the graphic below shows, in 2011, only 20% of companies in the S&P 500 published annual reports on their ESG performance and practices. In 2018, that number had jumped to 86%.2

Animated bar chart showing growth of ESG reporting by S and P 500 companies between the years 2011 and 2018. For 2011, it shows that 80 percent of companies were non-reporters and 20 percent were reporters, for 2012 it shows that 47 percent were non-reporters and 53 percent were reporters, for 2013 it shows that 28 percent were non-reporters and 72 percent were reporters, for 2014 it shows that 25 percent were non-reporters and 75 percent were reporters, for 2015 it shows that 19 percent were non-reporters and 81 percent were reporters, for 2016 it shows that 18 percent were non-reporters and 82 percent were reporters, for 2017 it shows that 15 percent were non-reporters and 85 percent were reporters, and for 2018 it shows that 14 percent were non-reporters and 86 percent were reporters. The source is the Governance and Accountability Institute, Inc., 2018

What’s more, research suggests that investors don’t have to sacrifice long-term growth when investing for impact3. “There is growing data showing that impact investing may potentially produce long-term returns that are as good as, or even better than, traditional investing,” says Jackie VanderBrug, head of Sustainable and Impact Investment Strategy, Merrill and Bank of America Private Bank, in the above video.

"It just makes sense," she adds. "Companies that are driving efficiency in water, waste and energy can help lower their costs, and better workplace policies may lead to more employee engagement and stronger revenues over the long term."