In a new report the World Economic Forum has voiced concerns that the investment industry lacks the expertise and understanding to effectively advise people on the growing trend of impact investing.
Impact investing involves funding projects that deliver wider benefits, from social to environmental, and can include renewable energy, health and social care and sustainable agriculture. The market has been growing in recent years but still remains a small part of the investment market as a whole.
The new report states, “Despite the ‘buzz’ surrounding impact investing, with an estimated $50 billion (£31bn) of assets under management, the sector remains a small proportion of the estimated $13.5 trillion (£8.6tn) of global funds invested in sustainable and responsible strategies and an even smaller percentage of tens of trillions in global assets under management.”
It notes that whilst impact investing is becoming a frequent topic of discussion among global leaders, asset owners and asset managers, few individuals or institutions have the expertise, tools and understanding of how to put it into practice.
According to a 2013 Financial Times survey, wealthy family offices that have already incorporated impact investing into their portfolio on average allocate 17% of their assets to this practice. Contributing to the sustainable economy, improving their community, risks management and family values were all cited as reasons for impact investing.
The report adds, that whilst impact investing gives wealthy families an opportunity to align their values with their financial goals and play a catalytic role in the sector, the decision should not be taken lightly. Expectations, values, and short and long-term capital needs all need to be considered before making an impact investment strategy.
“For those family offices that decide to engage meaningfully with impact investing as the sector matures, the opportunities to create multi-dimensional wealth (financial, societal impact and long-term legacy) will be worthwhile,” the World Economic Forum concludes.
Jennifer Kenning, director of wealth management and spearhead of impact investing at US wealth management firm Aspiriant, has previously spoken to Blue & Green Tomorrow about why she believes impact investing has the potential to reach $1 trillion (£600bn) and deliver significant social benefits by the end of the decade.
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