About the Impact Market
Impact Investing is a fast-growing sector of the financial services that aims to produce financial returns for investors while also generating positive social outcomes.
Though the concept of socially responsible investing has been around for decades, there is no commonly accepted definition and it has taken many forms over time. Some investment products simply employ a negative screen to exclude tobacco, military weapons, fossil fuel exploration, or even an entire country due to political issues. Others target a specific market to include, such as companies involved in wind energy production. Many select companies using ESG (environmental, social, governance) scores. Several dozen of these complicated and proprietary ESG scoring systems exist, each based on a different and subjective set of factors. Impact investing, in contrast, shifts the focus to the results or on challenges to overcome instead of on the company.
An Expanding Base of Interest
Much has been written about the substantial transfer of wealth from the post-WWII baby boomer generation to their children and grandchildren that will occur over the next two decades. Increasingly these generations see investing as more than just a tool to produce returns; they want to ensure that their investments are made into areas that reflect their personal values or can be targeted to affect societal, social, or environmental change. Their goal is not just to invest, but also to have their investments make a positive impact and/or encourage change.
This interest is not limited to the younger generations. Research has demonstrated substantial interest in impact investing among women and high net worth individuals. Likewise, increasing fiscal activism is challenging the boards of pension funds and endowments to look more closely at the investments they make. Whereas managers used to have greater flexibility to choose investments based solely on a risk-adjusted potential for return, they are now being asked to also consider socially responsibility.
Studies from academic and industry researchers have documented this philosophical shift and begun to document that investments in social good can produce competitive returns.
One of the key problems facing the expansion of impact investing has been the lack of public equity products. More than 90% of all impact investments take place as debt/bond offerings (ie. school bonds, water revenue infrastructure development bonds, etc.) or private equity (acquiring a stake in a private company such as one selling mosquito netting in Africa to reduce malaria). This means that many impact investments are either unavailable or difficult to access for the average US investor.
According to industry sources, quality impact investment products are in short supply. There is a need for more liquid products that can be easily found and purchased by all types of investors. To meet the demand for a transparent, liquid, easily investable product that can handle larger inflows of capital, the SSI Impact Index was developed with the goal of licensing it to an exchange traded fund (ETF) product sponsor and expanding investor access into environmental (such as energy efficiency, renewable energy production, land and ocean conversation), social impact (such as agricultural productivity, community development, and food production and security), and societal needs (such as elder care and local access to health services) themes.