Now more than ever, if you want to invest your money in companies with a conscience, you have plenty of options. But that hasn't made so-called impact investing any easier--yet.
The amount of social impact money under management increased 20 percent from 2013 to 2014. Even so, impact investing still faces criticism and skepticism from some financial advisers and investors who are put off by the lower financial returns these companies tend to generate, as highlighted by a recent New York Times piece. Making a sound impact investment requires much more time and effort than simply selecting a social cause to rally around. Below are three reasons why it's going to take more time and effort from both investors and investment firms to make impact investing mainstream.
1. Impact investing isn't about picking an investment class--it's about a complex strategy.
Matching your values to your investments is, obviously, more complicated than simply picking out stocks and bonds.
For example, according to the Times, "investing through a gender lens"--that is, investing in organizations that improve the status of women and girls in some way--has gained in popularity. But the first challenge is figuring out what kind of impact you want to and can make. This can range from supporting organizations that develop products designed to improve the lives of women to providing capital directly to women-owned businesses. The Global Impact Investing Network, a nonprofit advocacy group recommends considering what's more important to your strategy: the initial capital impact, or the long-term "ripple effect"?
2. The research is in flux.
Because impact investing is still a relatively new field, the firms that specialize in it aren't just focusing on managing portfolios--they're also still trying to figure out how and where to make the smartest investments.
Take Root Capital, a nonprofit social investment firm that invests in small agricultural businesses in Latin America. The Times states that the firm has made $900 million in impact investments through 1,800 deals over the span of 16 years. To do so, the firm employees over 140 people. That's because Root Capital doesn't place all of its staff members on money management--many of them are researching strategies, markets, and industries, Rachel Serotta, director of investor relations at Root Capital, told Inc.
3. It takes time to get the right information--and from the right sources.
Don't expect your current financial adviser to be much help--or even open to the idea of impact investing. Ellen Remmer, a managing partner of philanthropy advisory service Philanthropic Initiative, told the Times that when she was first interested in getting involved in impact investing, her then-financial adviser kept trying to steer her back to thinking solely about high financial returns. "I kept bringing it up, but I really got just no good response," she told the Times. After three years with no guidance, she decided to pursue impact investing on her own. Not all interested impact investors have the patience of Remmer--and as a result, some never end up getting into the field.
It's a problem that Serotta and Catherine Gill, SVP of investor relations and operations at Root Capital, saw far too often in the early days of impact investing, but they claim has improved. Gill says that to address this problem, Root Capital focuses on building solid relationships with a network of financial advisers. "People are now calling or answering our calls that really didn’t before," Gill told Inc. "Is it catching on fast enough to catch every potential investment opportunity? Probably not."