Retail investors are worried about impact, not financial returns



ImpactAlpha, June 18 – Retail investors increasingly believe impact investments can generate sufficient financial returns. It’s the “impact” they’re not so sure about.

The concerns are hampering broader adoption of sustainable exchange-traded funds, fixed-income community notes, listed investment trusts, impact mutual funds, and other mainstream products, according to “The Individual Imperative,” a retail impact investing report from the Rockefeller Foundation. The 200 retail investors and 300 advisory firms surveyed were split between North America and Europe.

“Early innovations in impact investing catered to accredited and institutional investors,” writes Rockefeller’s Saadia Madsbjerg. “The next frontier for impact investing lies with retail investors.”

  • Impact alpha. More than half of investors  see a clear link between financial investment and social returns. “In fact, some make an argument that, by considering impact in the investment process, you can actually do better financially; what’s termed ‘impact alpha,’” says Barclays’ Damian Payiatakis.
  • Impact light. Eight of 10 investors find it difficult or extremely difficult to measure impact and are confused about what is a ‘genuine’ impact investment, say the report’s authors. Many new products are ‘impact’ in labelling only, says Erika Karp of Cornerstone Capital Group. “I think there needs to be more ‘real’ products out there.” The lack of clarity makes it hard for clients to see the difference between products that may look similar. “Customers can see the cost, they can see the financial return,” says Triodos Investment Management’s Hans Stegeman. But “on the social impact aspect, there is no common language.” A common definition for impact and how to measure it can help, says the report (see, “Underwriting – and optimizing – for impact).
  • Nevertheless, they persist. Three-quarters of investors who are aware of impact investing say they currently make impact investments. More than half expect to increase their impact allocations to between 6% and 20% of their portfolios in the next two years.
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