The term “impact investing” is usually attributed to the Rockefeller Foundation around 2007 and gained wider recognition after a report from the Monitor Institute in 2009. In 2023, the global impact investing market was estimated to be worth US$ 478.5 billion and was projected to grow to be worth over US$ 550.2 billion in 2024. According to Vontobel’s 2023 Impact Investing Survey, at least 70% of institutional and professional investors globally plan to increase their allocations to impact investments in public and private markets by 2025.
Popular types of impact investments are purchases of:
- shares in for-profit businesses that are tackling social or environmental issues, such as renewable energy companies or businesses providing affordable housing,
- shares in mutual funds and exchange-traded funds focusing on such companies, and
- bonds issued by governments or NGOs to finance projects that address social needs.
Are you considering making such investments for the good of yourself and others? Success requires the ability to assess both types of impact independently. One assessment will focus on an investment’s societal impact, while the second will evaluate its financial performance.
Assessing the societal impact of an investment
Judging the societal impact of any action – especially before taking the action – is inherently subjective. Vontobel found that 54% of investors believe non-financial performance measurement challenges hinder impact investing and that 60% are concerned about misleading or exaggerated impact claims.
Even so, new tools are emerging to evaluate the so-called impact performance of investments, particularly in publicly listed companies.
In response to growing investor interest in businesses complying with environmental, social, and governance (ESG) guidelines, a wide range of proprietary systems are available for scoring equities according to ESG metrics. These metrics are usually based on data supplied in line with stock exchange listing requirements or recommendations, governmental mandates, and frameworks from non-governmental organisations.
However, the sources of ESG data are far less standardised than many other types of data typically used for evaluating equities. It will likely be years before public companies’ ESG reporting methodologies reach the same level of uniformity as financial balance sheets and income statements.
As a result, a significant proportion of the data used for ESG scoring and analysis is the result of human judgement calls versus straightforward ledger entries. For instance, companies often disclose ESG information in natural language which must be manually analysed, interpreted, and classified to create the data used for benchmarking in scoring systems.
Assessing the financial performance of impact investments
Impact investing is not charity. While you may adjust your financial performance expectations based on the societal impact of an investment, these expectations do not disappear entirely.
It is entirely reasonable to expect market-rate returns on impact investments. In a 2023 Global Impact Investing Network survey, 90% of institutional investors and 80% of investment managers reported having such financial goals. Furthermore, it is realistic to meet these expectations. In 2023, the ICM Institute, the non-profit research arm of Impact Capital Managers, found in 2023 that 65% of private market ‘impact exits’ met or exceeded financial targets.
Compared to measuring an investment’s social impact, tracking financial performance is a much more established field. Financial performance assessments rely on well-defined methodologies, utilise more concrete data, and can be efficiently automated with advanced technology like Altoo’s.
Successfully monitoring impact investments with wealth management platform
Ultimately, you have the final say in what the common good means to you and how best to advance it with your money. Formulating your approach to this highly personal and quintessentially human aspect of impact investing takes time for critical and often creative thinking.
A sophisticated wealth management platform can give you this time by taking over the tedious aspects of understanding your wealth’s growth as it benefits society. Such a platform will help you monitor the financial performance of all your investments – regardless of their nature and your reasons for making them – by aggregating data from multiple sources across your entire portfolio. This data is automatically analysed and visualised in intuitive dashboards, making it quick and easy to see the overall picture of your wealth and its individual components.
Each asset can have its own digital record, to which files can be attached to document any socially-oriented rationale for holding the asset. You can also create customisable categories and watchlists for equities – such as those in an “impact” group – and set up automated alerts to notify you of market moves. We believe you will find it the perfect tool for simplifying the numerical side of impact investing, allowing you to focus on the human side.
