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How millennials are driving the momentum behind impact investing

Posted on by MBC Strategic

In a post on Thomson Reuters Foundation website, Judith Rodin and Margot Brandenburg discuss how Millennials will continue to drive impact investing forward. A generational shift is happening, and it means only good things for those of us who are working to solve global problems. More individuals, many of them Millennials, bring a strong sense of purpose to how they make their money, how they spend it, and how they invest it.

In the next 40 years, generation X and the Millennials could inherit up to $41 trillion from baby boomers.  In a survey by Deloitte of 5,000 Millennials in 18 countries, 71 percent of respondents saw the desire to “improve society” as the top priority of business. Impact investing is at a tipping point, and Millennial investors who are looking to invest with purpose are poised to push it into the mainstream for good.

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Investing: Can You Apply Your Values to Create Value?

Posted on by MBC Strategic

Imagine the possibilities if more private investment money, working alongside philanthropy, could be directed at social challenges. Businesses have a very noble role as they create jobs and build the economic engine that strengthens communities and nations, but innovation and the entrepreneurial spirit has not been fully unleashed to help us find exciting new pathways for tackling the big social challenges of our day. Impact investing is at a tipping point. We see the corporate sector recognizing the value of leveraging their core products and services to benefit society. We are also seeing financial institutions like Goldman Sachs, JP Morgan, Credit Suisse and Morgan Stanley get into the game through the creation of impact investing funds. Private foundations are also increasingly turning toward impact investing.

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Millennials Will Bring Impact Investing Mainstream

Posted on by MBC Strategic

In this Stanford Social Innovation Review, Jed Emerson and Lindsay Norcott talk about the most recent ImpactAssets issue brief on “The Millennial Perspective: Understanding Preferences of the New Asset Owners.”  According to the blog and the report, “Next Gen”—the approximately 80 million individuals born in the United States between 1980-2000—values, experiences, and preferences are poised to accelerate impact investing, directing billions of dollars towards social benefits. Accenture has estimated that over the next several decades, baby boomers will pass $30 trillion in financial and non-financial assets to their heirs—that’s in North America alone. In another study, Spectrem Group found that 45 percent of wealthy millennials want to use their wealth to help others and consider social responsibility a factor when making investment decisions. The transfer of wealth to this generation presents a compelling opportunity to take impact investing mainstream. 

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More Companies Bow to Investors With a Social Cause

Posted on by MBC Strategic

Shareholders are driving changes in corporate policies and disclosures unthinkable a decade ago, on issues ranging from protecting rain forests to human rights. So far this year, environmental and social issues have accounted for 56% of shareholder proposals, representing a majority for the first time, according to accounting firm Ernst & Young LLP. That is up from about 40% in the previous two years, and means shareholders are increasingly voting on things like greenhouse-gas emissions, political spending and labor rights. 53% of companies in the S&P 500 index now publish sustainability reports, according to the Governance and Accountability Institute, addressing such matters as their energy efficiency and labor standards.

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The Gender Gap

Posted on by MBC Strategic

According to the IFC Job Study, women comprise 49.6 percent of the world’s population, but make up only 40.8 percent of the formal global labor market.  While globally inequality between men and women in education has been shrinking, women are still less likely to be educated.   These gender imbalances, primarily represented by education and employment, have been coined as “the Gender Gap”.  Before one can address this unfortunate social issue, the magnitude of potential positive change and the barriers to eliminate the issue must be understood.

A research report conducted by Goldman Sachs indicated that if Australia were to reconcile its Gender Gap (hire as many women as men), its GDP could increase by 11 percent.  Conducting the same analysis for other major nations suggests that US GDP could be boosted by as much as 10 percent, Eurozone GDP by 14 percent and Japanese GDP by 21 percent.  These projections are based on women’s contributions as more efficient laborers, as well as a simple increase in laborers.

Empirical evidence indicates that female employment has a positive impact on a company’s productivity and society’s well-being. In a recent case study, Oderbrecht’s, a Brazilian engineering, construction and chemicals group, newly acquired female-led team performed tasks 35 percent faster than teams with a majority of male workers.  Additionally, employed women are more inclined to help their families and communities out of poverty.  According to the IFC Jobs Study, women-headed households were found to reinvest up to 90 percent of their income into their families, compared to 30-40 percent contributed by men.  By investing in their children, women are helping to create a more productive future generation.

The barriers that stand in the way of progress toward reconciling the Gender Gap can be categorized as legislative, cultural and financial.

 

  • Government Difficulties:  In many developing nations, government instability makes implementing new policies and adapting old policies very difficult. Further in 102 of 141 economies, there already exists at least one legal difference between men and women that could hinder women’s economic opportunities – IFC Job Study.
  • Cultural Norms:  Much of the world still holds traditional views when it comes to women’s roles. Some cultures require permission from a husband to work; others don’t allow women to work outside of the home at all – IFC Job Study.
  • Financial Constraints:  Women are more likely to lack access to finance. A study of 34 countries from Western Europe to East Asia showed that women were 5 percent less likely to receive a loan – IFC Job Study.

These barriers provide a clear direction for effectively addressing the seemingly perpetual Gender Gap.  Over time, these barriers will diminish, especially where progress is intentionally encouraged. By supporting organizations and companies that implement gender-diversity hiring practices, as well as increasing awareness of the Gender Gap, we can help to eliminate it.

The Missing Middle

Posted on by MBC Strategic

     Big business often dominates the financial headlines every day, as journalists, investors and politicians seemingly track every single movement of the stock and bond markets. Yet when it comes to the U.S. economy, big business is only part of the story. One infrequently hears about businesses with less than 500 employees, yet in the U.S. they represent 99.7 percent of employer firms, have created over 65 percent of net new jobs from 1994 to 2009, and account for over half of nonfarm private GDP. These smaller businesses are often considered the lifeblood of the American economy, accounting for a good portion of innovation and often helping to give rise to the next generation of industry leaders. They have been a major driver of the economic growth of the U.S., as well as almost every major developed economy.

     In developing economies, the story is somewhat different. Historically, a lack of investment capital and poor economic policies have generally suppressed the growth of these small and medium enterprises (“SMEs”). Their business owners are just like business owners in the United States – willing to work hard to expand their businesses, create real value for their economies, accept accountability for results and ultimately help contribute toward a better future for their families and communities. Unfortunately, they have historically had a number of obstacles hindering their growth, the most common of which is a lack of access to financing.

     SMEs are the backbone of most economies, and have come to be known by many names in financial markets. “Small business,” “small-cap,” “middle market,” are some of the terms used to describe those firms that typically are profitable enough to have grown past the start-up phase, but yet not big enough to finance themselves in the debt capital markets. The definition of what qualifies as an SME can vary greatly from country to country, depending on the relative size of the economy and the sector under consideration. In the United States, the Small Business Administration (SBA) defines small business broadly as those businesses with 5 to 500 employees, a definition adopted for TriLinc Global.

     The “missing middle” is a term generally used by economists to describe the lack of financing available to this vital portion of the global economy. It describes the typical situation in developing economies: the largest businesses typically dominate bank financing. Microbusinesses are primarily funded by microfinance institutions, which have helped this business segment grow over the last 20 years. Unfortunately, those small and medium-sized businesses in the middle often have a harder time accessing finance, with five out of six SMEs worldwide claiming a lack of access to sufficient capital, thus making up the “missing middle” of finance.

 

What is the Difference Between Impact Investing and Socially Responsible Investing?

Posted on by MBC Strategic

When many investors first become aware of impact investing, they wonder if it is the same as Socially Responsible Investing. It is not. In this blog post, we seek to uncover the difference between impact investing and socially responsible investing.

So what is the difference between impact investing and socially responsible investing? Impact investing is distinctly different from socially responsible investing in that socially responsible investing typically applies a set of negative or positive screens to a group of publicly listed securities – for example, a mutual fund that avoids investments in tobacco, alcohol and firearms. Impact investing goes beyond a passive screen by actively seeking to invest in companies or projects that have the potential to create positive economic, social and/or environmental. Where socially responsible investing fund managers are generally passive and adopt a “do no harm” approach, impact investing funds typically not only seek to create positive impact, but measure and report their impact in a transparent way.

Beyond the impact investing objective, impact investing also typically targets progress on environmental, social and governance (ESG) matters relevant to a company’s strategy and operations. In impact investing the ESG analysis, which takes into account the effect that a company’s operations has on its market, community and environment, has become more mainstream in recent years, as analyses have determined that it can both drive long-term value and reduce brand and reputational risks. The UN Principles for Responsible Investment (like impact investing), which detail best practices in ESG investing, have been signed by nearly 700 investment managers and over 250 asset owners around the world, including Blackrock, Fidelity, KKR and CALPERS.

It is not enough for impact investing managers to merely intend to make a positive difference – managers and investors must track their social and environmental performance (the impact). In 2009, a group of impact investing stakeholders including investment managers, the Rockefeller Foundation, and the U.S. government, began to create a common set of social and environmental impact metrics that would increase the transparency and credibility of impact reporting. This led to the creation of the IRIS framework, which applies across sectors and geographies to give investors a standardized measure of the non-financial impact of their investments, ranging from average employee wages to metric tons of greenhouse gas offset. With leading impact investing funds and investors utilizing IRIS metrics to track and report their social and environmental results, investors will increasingly be able to compare and benchmark non-financial performance across managers and strategies.


What is Impact Investing?

Posted on by MBC Strategic

First things first: what is impact investing? Impact Investing is generally defined as investing with the specific objective of achieving both a financial return and a positive economic, social and/or environmental impact. Impact investing has been called “investing with purpose,” since it actively pursues positive social change, but not through philanthropy. Rather, impact investing is about making profit-seeking investments, using traditional debt and equity instruments, which support companies that have the power to change their communities and the world for the better.

Although it has only recently been growing in recognition, impact investing has been in existence in various forms for a long time. Since the 1960s, government-funded development finance institutions such as the World Bank’s private investment arm the International Finance Corporation (IFC), and U.S. Overseas Private Investment Corporation (OPIC), have engaged in a form of impact investing by making primarily private equity and debt investments in developing economies. The IFC, which coined the term “emerging markets” in the early 1980s, has proven that generating impact investing (investing with impact) does not necessarily require sacrificing return, achieving an annual internal rate of return of 18.3% on its investment funds portfolio between 2000 and 2011.

Within the field of impact investing, there is a wide range of investors seeking out different opportunities based on various types of desired impact and financial goals. Impact investing is commonly categorized as either “financial first” or “impact first,” which simply refers to the primary goal of the investment. Impact investing that puts “Impact first” is first and foremost trying to solve a particular economic, social or environmental problem, and are willing to sacrifice some level of financial return to achieve that primary objective.

Other impact investing managers engage in “financial first” impact investing, with the primary goal of delivering competitive financial returns while creating as much impact as possible. While most financial first impact investing focuses on solving a particular economic, social or environmental problem, their investment strategy is likely more traditional with a disciplined, primary focus of generating financial returns. This group of investors, which includes TriLinc Global, tends towards the long-term view that generating returns that are competitive to those of traditional asset classes will likely attract more capital to impact investing, and thus have the scalability to generate a larger, positive impact on society in the long term.

Many reports and articles predict a bright future for the impact investing industry, as investors seek to create something greater than a financial return from their invested assets. Hope Consulting has predicted that there is approximately $120 billion in current demand for such investments, and found that this demand is likely to grow as investors become more comfortable with the emerging asset class. As impact investing develops, an even greater variety of funds targeting the different risk, return and impact profiles of individual investors will likely appear. Over time those most successful at achieving their primary objective will likely emerge as industry leaders and market makers. Other burgeoning efforts, such as those to establish independent ratings systems and standardized metrics, will further standardize measurement and enable comparison across a multitude of factors, all of which will help individual and institutional investors to make decisions that align their money and their desired impact. For the businesses that they fund, and the communities and environments that those businesses improve, the growth of impact investing is a very welcome trend.

Read more: What is ESG? >

Weekly Impact Investment Market Update: June 8, 2018

Posted on by trilinc_admin17

Impact Investing & ESG
 

Can Impact Investing Avoid the Failures of Microfinance?
The impact investment industry is growing rapidly. In 2010, J.P Morgan projected up to $1T in investment would be deployed this decade — which would make impact investing twice the size of official development aid to the world’s less develop countries.

Getting Asia Ready for ESG Investing
ESG investing is gaining traction globally because of the resilience it can offer in times of uncertainty and the value it creates to foster sustainability.

Everyone Has a Role to Play in ESG
There is, as yet, no legal requirement for pension schemes to provide or incorporate environmental, social and governance-led funds into their investments. So who is responsible for responsible investment and what role should different parties play in pushing this up the agenda?

Financial Inclusion for Emerging Economies – A Case for Private Debt Impact Investing
The impact investing industry marks another phase in its evolution by welcoming to its ranks deep-pocketed private equity firms like TPG, Bain Capital Management, and most recently KKR.

BC State Built a ‘Responsible’ Fund That’s Outperforming Its Main Portfolio
A college finds ESG investing is actually paying off.

ESG Funds: Impact and Alpha
These ETFs show that an adherence to companies with high-ranking environmental, social and governance scores produce more reliable earnings and can outperform the market.

 

United States & Europe
 

U.S Economy Extends its Hiring Spree, with a Better than Expected 223,000 New Jobs in May
The U.S. economy added 223,000 jobs in May as U.S. companies continued their hiring spree, according to the Labor Department’s monthly jobs report released Friday. The unemployment rate fell to 3.8 percent, the lowest since 2000.

 

Developing Economies
 

Bullish Signs in These Seven Charts Boost Emerging Markets
From Goldman Sachs Group Inc. to Morgan Stanley and Citigroup Inc., analysts say optimistic signs are hard to miss, touting high real interest rates, inflation that’s close to all-time lows and for the most part, the disappearance of those pesky current-account deficits so common to the 2013 taper tantrum.

Here is the World Bank’s New Economic Outlook for Sub-Saharan Africa
The report stated that countries like Ghana, Kenya, and Nigeria, experienced a pickup in manufacturing activity, while renewed government commitments to macroeconomic and governance reforms have boosted investor and consumer confidence in Angola, South Africa, and Zimbabwe.

Africa’s Most Promising Economy is Opening up to International Investors
Domestic and foreign investors will soon be able to get a slice of Ethiopia’s booming economy.

World Bank Puts Economic Growth Projection Indonesia at 5.3% in 2018
Still, the World Bank sees plenty of reason to stay positive about the Indonesian economy in the foreseeable future.

Vietnam GDP to Grow by 6.6% in 2018: ICAEW
Vietnam’s GDP is expected to grow 6.6 per cent in 2018, down slightly from 6.8 per cent last year.

IMF Agrees to $50 Billion Deal to Help Argentina’s Economy
Argentina and the International Monetary Fund agreed Thursday on a three-year $50 billion stand-by financing deal aimed at strengthening the South American country’s economy and helping it fight inflation.

Weekly Impact Investment Market Update: June 1, 2018

Posted on by trilinc_admin17

Impact Investing & ESG
 

Give the People What They Want: Socially Responsible Investments in 401(k)s
If you spend much time reading the financial press nowadays, it’s likely that you’ve come across more than a few articles discussing the growing popularity of investing according to various social and environmental mandates.

Ahead of the Curve: Valuable Tools for EMs
The challenge is that ESG discussions are often accompanied by a degree of confusion because participants cannot agree on what it involves, whether it improves returns, or how it changes the risk profile. Greater clarity can be achieved by analyzing ESG through two separate lenses.

Forbes’ Impact Summit Will Bring Together Business Titans, Impact Investors, and Major Influencers to Drive Impact Investing and Impact Business Globally
Forbes Media announced its first-ever, invite-only Forbes Impact Summit on June 12-13, 2018 in Newark and New York City.

Preqin Solutions Launches ESG & Impact Module
The new solution will help general partners and investors deploy and manage their ESG & impact programs

 

United States & Europe
 

U.S. Economy Extends its Hiring Spree, with a Better than Expected 223,000 New Jobs in May
The U.S. economy added 223,000 job in May as U.S. companies continued their hiring spree, according to the Labor Department’s monthly jobs report released Friday. The unemployment rate fell to 3.8 percent, the lowest since 2000.

 

Developing Economies
 

Emerging Markets Expected to Expand 4.9%
Throughout 2016 and 2017, emerging markets staged an impressive rally.

Chile Sets New Economic Plans in Motion
In its first months in office, Chile’s new government is making a big push to put the country on a new fiscal path.

Secretary General Welcomes President of Colombia to NATO
Secretary General Jens Stoltenberg welcomed President Juan Manuel Santos of Colombia to NATO for talks on Thursday, marking the first-ever visit by a Colombian head of state to the Alliance. Colombia is NATO’s newest partner, and its first in Latin America.