As climate change and social inequality remain pressing global issues, impact investing has emerged as a significant trend in the investment landscape.

The New York-based Global Impact Investment Network (GIIN) reported a staggering US$1.164 trillion in global impact investments in 2021. Nevertheless, reaching the U.N.’s Sustainable Development Goals by 2030 and achieving net-zero emissions by 2050 still require an estimated US$4.2 trillion in funding.

Impact Investing is a Growing Trend

Impact investing entails investors seeking to generate social and environmental impact alongside financial returns. This investment approach has gained traction in recent years, with individuals and institutions becoming increasingly concerned about the planet’s state and existing social inequalities.

Private wealth divisions have been quick to recognize the potential of impact investing. However, this approach also presents challenges alongside numerous opportunities.

Opportunities for Private Wealth Divisions

• Investing for Global Impact: A Power for Good 2022 revealed that, on average, 32% of respondents’ portfolios were allocated to impact investments.
• This figure is expected to rise to 50% within the next five years, with around 40% of respondents anticipating most of their portfolios to be comprised of impact investments in the future.
• Private wealth divisions can now invest in numerous companies dedicated to sustainability, social responsibility, and environmental stewardship.
• Such investments allow investors to meet their financial goals while contributing to a more sustainable future.

Challenges in Impact Investing

• Lack of standardized metrics for measuring the social and environmental impact of investments, hindering comparisons between assets
• The call for increased transparency and consistency in reporting poses difficulties for investors

Best Practices for Incorporating Impact Investing

1. Understanding Clients’ Goals and Values: Gaining a clear understanding of client’s goals and values enables wealth managers to identify impact investing objectives and select suitable investments.
2. Maintaining a Diversified Portfolio: Just as with traditional investment strategies, maintaining a diversified portfolio remains crucial.

Developing Teams with Impact Investing Expertise

Private wealth management firms can attract and retain skilled professionals by:

• Offering impact investing training
• Incorporating this area into their professional development programs

These professionals should possess the expertise to assess investments from financial, social, and environmental perspectives.

Conclusion

Ultimately, the rise of impact investing presents both opportunities and challenges for private wealth management divisions. By adopting best practices, understanding clients’ values, maintaining portfolio diversity, and developing teams with impact investing expertise, wealth management firms can successfully navigate this investment landscape.

As demand for responsible investments grows, impact investing is set to become a cornerstone of private wealth management in the coming years. The Anderson Search Group can help your private wealth divisions find people with experience in impact investing.