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Why impact investment could soon be a trillion-dollar industry

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By the end of the decade, impact investment has the potential to reach $1 trillion (£600 billion) and deliver significant social benefits, according to Jennifer Kenning, director of wealth management and spearhead of impact investing at US wealth management firm Aspiriant.

Aspiriant manages around $8 billion (£4.8 billion) and serves families with $1.5m (£900,000) in investable assets upwards. Over the last 24-36 months, Kenning says the firm has noticed an upward trend in the number of clients asking about impact investment opportunities and to be educated on the rapidly growing sector.

A relatively young form of investment, impact investors seek to have impact across a double bottom line – delivering both financial returns and social good. While the concept of investing for social good has been around for decades, it is only in recent years that the term ‘impact investment’ has emerged. The market has seen accelerated growth, with large financial players like Deutsche Bank, UBS and Goldman Sachs all interested.

“Impact investing is a way of putting money with purpose and driving your mission in a for-profit manner that could have far greater capabilities than in a traditional non-profit grant manner”, Kenning explains.

“I look at it from an infrastructure perspective; when you are trying to tackle the issues of clean drinking water, energy, housing, education and healthcare. These are very large infrastructure problems and, I believe, will take for-profit capital to be able to tackle the issues in a manner that is going to be to scale and in a reasonable amount of time.”

The benefits impact investment can have on society were put into perspective for Kenning during a recent executive immersion trip to Africa. She says not only did the trip highlight the difficulties families and communities go through, but also the challenges companies are faced with when trying to get goods and services to developing areas.

Kenning adds that over the last 50-100 years, we have seen that relying strictly on aid is not “moving the needle forward”. Therefore, she believes impact investment is uniquely placed to address the issue. “One of the most resounding things I got on the trip was that they want the opportunity, not the hand out”, she adds.

The impact investment market is currently worth around $50 billion (£30 billion) globally, but Kenning believes it has the potential to be worth $1 trillion (£600 billion) in the next five years. This is because the lines between investment portfolios and philanthropic objectives are becoming blurred and impact investing could soon be part of everyone’s asset allocation, she says.

However, Kenning adds that in order to achieve this, the industry needs to have the institutionalised process that there is in traditional markets – along with benchmarks, proper reporting, standardized language and due diligence.

Whilst that trillion-dollar figure represents only a small portion of the total amount of money in the capital market, this would have a huge impact on the global economy and well-being of the world’s population.

Kenning says, “I think that by 2020 we will start to see really great change from these investments and by 2030 we could have a significant impact on the people that live on less than $2 (£1.20) a day.

“I think once you have products, process and people behind impact investment, you will start to have outcomes and solutions.”

Jennifer Kenning, director of wealth management and spearhead of impact investing at Aspiriant

When it comes to investors, there is definitely demand. A survey published last year by the sustainable bank Triodos found that 3 million investors in Britain alone will consider investing in social projects this year. However, a lack of knowledge – particularly among financial advisers – is hampering further growth in the sector.

Kenning explains, “The clients trust the gatekeeper. If the gatekeeper isn’t going to open the capital, then it’s not going to flow

into the system.

“The demand is definitely there. There is not one client that I have spoken to that isn’t excited once you have walked them though it. The data says that 81% of clients would make an investment in impact investing if they understood it and their adviser was educating them on it.”

Interest in the sector is also expected to continue growing, as those under the age of 35 begin to inherit money from the baby boomers above them. The younger generation “tie purpose into everything they do” and operate businesses completely different from their predecessors, Kenning says. As a result, impact investment will be driven by the next generation who want to see social return and financial return exist in the same opportunity.

As well as a moral advantage, research demonstrates that impact investing can have a positive impact on financial returns. As a result, these types of investments can create a double bottom line and achieve both social benefits and attractive returns, something Kenning describes as a “win-win” for investors and society.

She added, “I also think that what you saw in [the financial crash of] 2008/09 demonstrated to investors that some impact investment portfolios hold up better due to the environments you’re investing in.”

When it comes to selecting where to place your money, Kenning urges investors to pick an enterprise or issue they are passionate about and connect with, as well as assessing performance and other benchmarks.

“A lot of our clients are really focused on domestic impact investment, for both social and environmental projects. I think clients want to adopt a model of really helping their local communities. They want to see the good in their back yard”, she says.

Many investors who focus on developing nations have other ties to the area, such as through travelling or operating businesses there, Kenning explains. Others opt for investing in these regions because they enjoy having their money – and therefore impact – on a greater scale than it would in domestic markets alone.

If the impact investment market continues to grow, it has the potential to change the financial world for the better, allowing it to address global challenges and benefit the whole of society.

Kenning concludes, “I think we have more to lose by not trying impact investment than by trying. We have to do something; we are running out of resources and we have a population that is continuing to grow; we have 7 billion people today and will have 9 billion people by 2050. We have to be able to feed them, provide them with water and give them opportunities.“

Jennifer Kenning, is director of wealth management and spearhead of impact investing at US wealth management firm Aspiriant. Follow Aspiriant on Twitter: @AspiriantNews

Photo: Aspiriant

Further reading:

Report ‘de-risks’ impact investment to open sector up to mainstream

Triodos survey says 3m may consider social investment in next year

Fiona Woolf: London must lead in social impact investment

Impact investment ‘developing rapidly’, says UKSIF report

Impact investment: ESG practices increase risk-adjusted in the long-term

Editors Choice

2017 Was the Most Expensive Year Ever for U.S. Natural Disaster Damage

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Natural Disaster Damage
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Devastating natural disasters dominated last year’s headlines and made many wonder how the affected areas could ever recover. According to data from the U.S. National Oceanic and Atmospheric Administration (NOAA), the storms and other weather events that caused the destruction were extremely costly.

Specifically, the natural disasters recorded last year caused so much damage that the associated losses made 2017 the most expensive year on record in the 38-year history of keeping such data. The following are several reasons that 2017 made headlines for this notorious distinction.

Over a Dozen Events With Losses Totalling More Than $1 Billion Each

The NOAA reports that in total, the recorded losses equaled $306 billion, which is $90 billion more than the amount associated with 2005, the previous record holder. One of the primary reasons the dollar amount climbed so high last year is that 16 individual events cost more than $1 billion each.

Global Warming Contributed to Hurricane Harvey

Hurricane Harvey, one of two Category-4 hurricanes that made landfall in 2017, was a particularly expensive natural disaster. Nearly 800,000 people needed assistance after the storm. Hurricane Harvey alone cost $125 billion, with some estimates even higher than that. So far, the only hurricane more expensive than Harvey was Katrina.

Before Hurricane Harvey hit, scientists speculated climate change could make it worse. They discussed how rising ocean temperatures make hurricanes more intense, and warmer atmospheres have higher amounts of water vapor, causing larger rainfall totals.

Since then, a new study published in “Environmental Research Letters” confirmed climate change was indeed a factor that gave Hurricane Harvey more power. It found environmental conditions associated with global warming made the storm more severe and increase the likelihood of similar events.

That same study also compared today’s storms with ones from 1900. It found that compared to those earlier weather phenomena, Hurricane Harvey’s rainfall was 15 percent more intense and three times as likely to happen now versus in 1900.

Warming oceans are one of the contributing factors. Specifically, the ocean’s surface temperature associated with the region where Hurricane Harvey quickly transformed from a tropical storm into a Category 4 hurricane has become about 1 degree Fahrenheit warmer over the past few decades.

Michael Mann, a climatologist from Penn State University, believes that due to a relationship known as the Clausius-Clapeyron equation, there was about 3-5 percent more moisture in the air, which caused more rain. To complicate matters even more, global warming made sea levels rise by more than 6 inches in the Houston area over the past few decades. Mann also believes global warming caused the stationery summer weather patterns that made Hurricane Harvey stop moving and saturate the area with rain. Mann clarifies although global warming didn’t cause Hurricane Harvey as a whole, it exacerbated several factors of the storm.

Also, statistics collected by the Environmental Protection Agency (EPA) from 1901-2015 found the precipitation levels in the contiguous 48 states had gone up by 0.17 inches per decade. The EPA notes the increase is expected because rainfall totals tend to go up as the Earth’s surface temperatures rise and additional evaporation occurs.

The EPA’s measurements about surface temperature indicate for the same timespan mentioned above for precipitation, the temperatures have gotten 0.14 Fahrenheit hotter per decade. Also, although the global surface temperature went up by 0.15 Fahrenheit during the same period, the temperature rise has been faster in the United States compared to the rest of the world since the 1970s.

Severe Storms Cause a Loss of Productivity

Many people don’t immediately think of one important factor when discussing the aftermath of natural disasters: the adverse impact on productivity. Businesses and members of the workforce in Houston, Miami and other cities hit by Hurricanes Harvey and Irma suffered losses that may total between $150-200 billion when both damage and sacrificed productivity are accounted for, according to estimates from Moody’s Analytics.

Some workers who decide to leave their homes before storms arrive delay returning after the immediate danger has passed. As a result of their absences, a labor-force shortage may occur. News sources posted stories highlighting that the Houston area might not have enough construction workers to handle necessary rebuilding efforts after Hurricane Harvey.

It’s not hard to imagine the impact heavy storms could have on business operations. However, companies that offer goods to help people prepare for hurricanes and similar disasters often find the market wants what they provide. While watching the paths of current storms, people tend to recall storms that took place years ago and see them as reminders to get prepared for what could happen.

Longer and More Disastrous Wildfires Require More Resources to Fight

The wildfires that ripped through millions of acres in the western region of the United States this year also made substantial contributions to the 2017 disaster-related expenses. The U.S. Forest Service, which is within the U.S. Department of Agriculture, reported 2017 as its costliest year ever and saw total expenditures exceeding $2 billion.

The agency anticipates the costs will grow, especially when they take past data into account. In 1995, the U.S. Forest Service spent 16 percent of its annual budget for wildfire-fighting costs, but in 2015, the amount ballooned to 52 percent. The sheer number of wildfires last year didn’t help matters either. Between January 1 and November 24 last year, 54,858 fires broke out.

2017: Among the Three Hottest Years Recorded

People cause the majority of wildfires, but climate change acts as another notable contributor. In addition to affecting hurricane intensity, rising temperatures help fires spread and make them harder to extinguish.

Data collected by the National Interagency Fire Center and published by the EPA highlighted a correlation between the largest wildfires and the warmest years on record. The extent of damage caused by wildfires has gotten worse since the 1980s, but became particularly severe starting in 2000 during a period characterized by some of the warmest years the U.S. ever recorded.

Things haven’t changed for the better, either. In mid-December of 2017, the World Meteorological Organization released a statement announcing the year would likely end as one of the three warmest years ever recorded. A notable finding since the group looks at global land and ocean temperature, not just statistics associated with the United States.

Not all the most financially impactful weather events in 2017 were hurricanes and wildfires. Some of the other issues that cost over $1 billion included a hailstorm in Colorado, tornados in several regions of the U.S. and substantial flooding throughout Missouri and Arkansas.

Although numerous factors gave these natural disasters momentum, scientists know climate change was a defining force — a reality that should worry just about everyone.

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Environment

How to be More eco-Responsible in 2018

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eco-responsible
Shutterstock / By KENG MERRY Paper Art | https://www.shutterstock.com/g/kengmerrymikeymelody

Nowadays, more and more people are talking about being more eco-responsible. There is a constant growth of information regarding the importance of being aware of ecological issues and the methods of using eco-friendly necessities on daily basis.

Have you been considering becoming more eco-responsible after the New Year? If so, here are some useful tips that could help you make the difference in the following year:

1. Energy – produce it, save it

If you’re building a house or planning to expand your living space, think before deciding on the final square footage. Maybe you don’t really need that much space. Unnecessary square footage will force you to spend more building materials, but it will also result in having to use extra heating, air-conditioning, and electricity in it.

It’s even better if you seek professional help to reduce energy consumption. An energy audit can provide you some great piece of advice on how to save on your energy bills.

While buying appliances such as a refrigerator or a dishwasher, make sure they have “Energy Star” label on, as it means they are energy-efficient.

energy efficient

Shutterstock Licensed Photo – By My Life Graphic

Regarding the production of energy, you can power your home with renewable energy. The most common way is to install rooftop solar panels. They can be used for producing electricity, as well as heat for the house. If powering the whole home is a big step for you, try with solar oven then – they trap the sunlight in order to heat food! Solar air conditioning is another interesting thing to try out – instead of providing you with heat, it cools your house!

2. Don’t be just another tourist

Think about the environment, as well your own enjoyment – try not to travel too far, as most forms of transport contribute to the climate change. Choose the most environmentally friendly means of transport that you can, as well as environmentally friendly accommodation. If you can go to a destination that is being recommended as an eco-travel destination – even better! Interesting countries such as Zambia, Vietnam or Nicaragua are among these destinations that are famous for its sustainability efforts.

3. Let your beauty be also eco-friendly

eco-friendly

Shutterstock / By Khakimullin Aleksandr

We all want to look beautiful. Unfortunately, sometimes (or very often) it comes with a price. Cruelty-free cosmetics are making its way on the world market but be careful with the labels – just because it says a product hasn’t been tested on animals, it doesn’t  mean that some of the product’s ingredients haven’t been tested on some poor animal.

To be sure which companies definitely stay away from the cruel testing on animals, check PETA Bunny list of cosmetic companies just to make sure which ones are truly and completely cruelty-free.

It’s also important if a brand uses toxic ingredients. Brands such as Tata Harper Skincare or Dr Bronner’s use only organic ingredients and biodegradable packaging, as well as being cruelty-free. Of course, this list is longer, so you’ll have to do some online research.

4. Know thy recycling

People often make mistakes while wanting to do something good for the environment. For example, plastic grocery bags, take-out containers, paper coffee cups and shredded paper cannot be recycled in your curb for many reasons, so don’t throw them into recycling bins. The same applies to pizza boxes, household glass, ceramics, and pottery – whether they are contaminated by grease or difficult to recycle, they just can’t go through the usual recycling process.

People usually forget to do is to rinse plastic and metal containers – they always have some residue, so be thorough. Also, bottle caps are allowed, too, so don’t separate them from the bottles. However, yard waste isn’t recyclable, so any yard waste or junk you are unsure of – just contact rubbish removal services instead of piling it up in public containers or in your own yard.

5. Fashion can be both eco-friendly and cool

Believe it or not, there are actually places where you can buy clothes that are eco-friendly, sustainable, as well as ethical. And they look cool, too! Companies like Everlane are very transparent about where their clothes are manufactured and how the price is set. PACT is another great company that uses non-GMO, organic cotton and non-toxic dyes for their clothing, while simultaneously using renewable energy factories. Soko is a company that uses natural and recycled materials in making their clothes and jewelry.

All in all

The truth is – being eco-responsible can be done in many ways. There are tons of small things we could change when it comes to our habits that would make a positive influence on the environment. The point is to start doing research on things that can be done by every person and it can start with the only thing that person has the control of – their own household.

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