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Impact investing on thecusp of mainstreamwealth management

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Jun 29, 2014 @ 12:01 amBy William Burckart

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The news releases arrived in noteworthysuccession throughout 2013. Morgan Stanley,

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Impact investing on the cusp of mainstream wealth management

http://www.investmentnews.com/article/20140629/REG/306299996/impact-investing-on-the-cusp-of-mainstream-wealth-management

names in the ?nancial services industry —announced plans to establish or augment theiractivities around impact investing. Suchinvestments are made with the intention ofgenerating measurable social andenvironmental impact alongside appropriate?nancial returns.

Each ?rm signaled a different approach andeach used diverse language to describe itsefforts. But the gist was the same: Thesigni?cance of investment directed atachieving impact is growing, as is thewillingness to engage in it beyond thetraditional con?nes of corporate philanthropy.

Advisers who don't believe impact investingwill play a meaningful role in their own clientstrategies aren't seeing the writing on the wall.Investing for meaningful impact will becomepart of mainstream planning and, in fact, willbe the core portfolio for many next-generationinvestors who stand to inherit upwards of $41trillion in baby boomer wealth.

A 2013 study by the World Economic Forumfound that next-generation investorsconsistently ranked impact performance astheir primary investment criterion, ahead ofreturn. As individuals and institutions look to

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servicesindustry tosupply —and?nancialplannersto advise

on — ?nancial products and strategiesconsistent with these broader goals, ?rms willhave to ?gure out how to serve a new set ofclient demands.

RESHAPING GLOBAL PRIORITIES

The deepening embrace of impact investing bythe ?nancial services industry mirrors abroader reshaping of global priorities.Skyrocketing de?cits, uncertain ?nancialmarkets and staggering needs have thrust theurgency of impact investing to the forefront.What have emerged as a result are newopportunities, challenges and innovation in allsectors that will help lay the groundwork for amore prosperous future.

This shift was captured in 2010 when 93% ofcorporate chief executives responding to anAccenture survey indicated that sustainabilitywould be critical to the future success of their

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meshed with core businesses, fundamentallytransforming principal capabilities, processesand systems.

To offer perspective on the ?nancial servicessector's response to the surging interest inimpact investing, Impact Economy and theMoney Management Institute recentlypublished a special report, “Serving ClientDemand for Impact Investing: A Hands-onGuide for Financial Advisors and SeniorManagement.” The report explores the genesisof the interest by ?nancial service institutionsin impact investing, their struggles with certainaspects of implementing these kinds ofinvestment programs and a potential pathforward.

While a number of ?rms are beginning to adaptto the concept, investors, investment fundsand advisers nonetheless struggle withdifferent elements of impact investingstrategies. Evidence suggests that global?nancial institutions are succeeding, to varyingdegrees, in aligning impact investmentprograms with their responsibility mission but,on the whole, have not succeeded in aligningthese programs with their ?nancial mission.

This is the principal reason why impact

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appears to be on the doorstep, and the veryissues limiting the growth of impact investingare, in turn, creating a number of conditions forpushing it forward. Many ?rms are usingcomponents of their institutional platforms —namely corporate philanthropy, CommunityReinvestment Act-motivated lending, sociallyresponsible investing or wealth management— to match particular client demand.

Some examples: Citigroup Inc., though notadopting the impact investment label, hasnonetheless mobilized resources along similarlines, with a focus on inclusive ?nance, via theCiti Micro?nance business group and CitiCommunity Capital. In 2013, Deutsche BankAG created a head of?ce for environmental,social and governance investing to furtherdrive ESG integration in the asset and wealthmanagement areas of the ?rm. GoldmanSachs' impact-related investing activities aresplit into two departments: the UrbanInvestment Group and the Goldman SachsFoundation. Social Finance was launched atJPMorgan Chase in 2007, bridging the ?rm'scorporate responsibility department, whichincludes global philanthropy and sustainabilityinitiatives, and the investment bank.

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organizational functions, including advising,originating, trading, managing and distributingcapital. Even there, though, progress isbeginning to be made. This is evident inMorgan Stanley's new Institute for SustainableInvesting, which offers wealth managementclients access to investment products withvalues alignment, ESG integration, varioussector exposures, and impact-speci?cproducts.

"CRAZY UNCLE IN THE ATTIC'

An alternative approach may be to embedimpact investing across divisions of aninstitution. As Mark Sloss, senior portfoliomanager and head of premier portfolioservices at UBS Wealth ManagementAmericas, said, “Impact investing should notbe cloistered like the crazy uncle in the attic.”UBS envisions an “open architecture” modelthat welcomes the currently unstructurednature of impact investing. As a result, sociallyresponsible and sustainable investing effortsare housed within the ?rm's WealthManagement Americas division.

Regardless of the approach ?nancial services?rms favor, an impact investment program can

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wealth or asset management practices of a?nancial institution, irrespective of whetherthese investments help to meet institutionalphilanthropic or compliance mandates (thecurrent added value for most impact investingby ?nancial institutions). In our experience,positioning impact investing in this mannerprovides ?nancial institutions and adviserswith a way to respond to the growing demand.

Embedded within the concept of impactinvesting (and the wider spectrum of impact-related investing, such as socially responsibleinvesting) are demographic trends that reaecta cultural inclination for “doing well and doinggood” simultaneously. This is notably differentfrom the old model of “making money andgiving back,” personi?ed by Bill Gates andWarren Buffett.

A number of trends will begin to inauencefuture decision making, including growingconsumer demand from the global poor, theneed for resource ef?ciency and green growth,the rise of the sustainable or “virtuous”consumer, and the massive intergenerationalwealth transfer between baby boomers andtheir bene?ciaries.

If impact investing has at times been



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in the attic,” perhaps the time has come to letthe crazy uncle out. Despite his eccentricities,he is looking more and more like the rich uncle— aligned with the priorities of the soon-to-beowners of $41 trillion in global capital, andpotentially a harbinger of a new force for socialgood.

William Burckart is the managing director ofImpact Economy (North America), a globalimpact investing and strategy @rm, and amember of the Working Capital Group of thenational Micro Capital Task Force.

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