75% of investors say they’re interested in impact investing, or putting their money behind companies that make a positive difference in the world.
I started my career in impact investing back in 2007, when it was still an uncommon approach to investing. Impact investing means putting your money behind companies that generate positive environmental and social outcomes —while also trying to earn meaningful financial returns. In those early days, I sometimes felt like I was toiling in an obscure sub-industry on the fringes of finance and investing. I was proud to actually be making a difference, but impact investing advocates like me had our work cut out for us in convincing traditional investors to pay attention.
The work has paid off. These days, impact investing is the topic du jour, with exploding interest among investors—in 2017, 75% of individual investors said they’re interested in using their investing dollars to affect social and environmental change. It’s been really rewarding to watch this field, so near and dear to me, really come into its own.
Throughout my career, I’ve found myself seeking out employers with values that complement my own. Millennials are three times more likely to seek employment with a sustainably minded company, according to the Morgan Stanley Institute for Sustainable Investing. I readily admit that the intersection of profession and purpose is important to me, along with making buying decisions that align with my values. (And, somewhat grudgingly, I admit that I’m a millennial, too).
I won’t pretend that every minute of my day is spent altruistically, but throughout my career I’ve tried to ask: “Is this work meaningful? Will it make a positive impact on the world?” When I feel like I’m actually making a difference in terms of accelerating the flow of capital towards positive impact, I find myself motivated to work even harder. I can easily say, over a decade in, that I’ve never been more energized and passionate about my work than I am today. This is partly because it’s all I’ve ever known or wanted to do professionally.
My interest in the intersection of money and meaning was formalized when I studied abroad in Madagascar, living in a small town on the southeast part of the island called Fort Dauphin. There I was fascinated by the incredibly unique culture and environment: Did you know that 80% of the plants and animals found in Madagascar don’t exist anywhere else on the planet?
As part of my academic studies, I spent time with Malagasy women, many of whom had managed to start small businesses despite limited formal education, a lack of mentorship and very limited access to capital. Their hard work—founding a hair salon, a guest house or a radio station, for example—had ripple effects of positive impact throughout their families, communities and even regional politics. This experience with women entrepreneurs thriving under such austere circumstances was a turning point for me. I became intellectually curious about the idea that we can use financial markets, money and business to create a positive impact—not only for the benefit of ourselves and our families, but for the world.
After graduating from college in the mid-2000s, I sought ways to integrate finance with positive social and environmental change. I started my career when impact investing was still considered a playground of the ultra-wealthy or something only for granola tree-huggers. I had the privilege of working with many of the earliest pioneers as sustainable and impact investing took hold in a more mainstream context. In many ways, my career has paralleled the growth of the industry. Because of the nascence of impact investing, I often found myself advocating to create a defined job focused on sustainable and impact investing across the organizations that I worked for, rather than filling a well-defined position that already existed.
An approach to investing that began over a century ago, this field started as a way to avoid exposure to companies that contradicted the moral or ethical values of investors – think about industries such as tobacco, gambling or weapons. This evolved to include issues of environmental and social activism such as avoiding companies with human rights violations or lack of diversity, but the core investment thesis was the same: avoid sectors and industries in opposition to the investor’s values.
Over time, the industry has evolved significantly. While avoiding certain companies, industries and/or geographies can be an important objective for some investors, one can do more by positively screening for investments. This means selectively investing in strong companies that stand out as leaders in environmental, social and governance practices, and those that develop products and solutions to help solve key sustainability themes such as water scarcity, climate change mitigation and access to food. For example, that could mean investing in a company that’s actively working to reduce its carbon footprint through its supply chain operations, or a company that is a leader in promoting gender diversity through maternity and paternity policies, or one that is improving access to high quality healthcare for poor people globally.
At Morgan Stanley, we call the space “Investing with Impact” and define it as investing with the intention of generating not only financial returns but also positive social and/or environmental impact.
Many people think that investing to generate positive environmental and social impact means sacrificing financial gains. That simply isn’t the case: In 2015 the Institute for Sustainable Investing at Morgan Stanley found that sustainable equity mutual funds had equal or higher median returns with equal or lower volatility than traditional mutual funds over a majority of the time studied. Evidence has also shown that companies that perform well on material environmental, social and governance factors outperform peers. For example, Morgan Stanley Equity Research found that more gender diverse companies offer similar returns with lower volatility.
Impact investing has grown tremendously in large part because investors aren’t being asked to accept subpar returns. Plus, positive environmental and social outcomes are increasingly more measurable. Part of my job today is helping individuals and institutions make sense of what’s happening in the world around us, and how that could manifest itself into risks and opportunities within investment portfolios. For example, as the environmental costs of climate change rack up, planning for the future and thinking about climate mitigation can genuinely help a company’s bottom line. As environmental and social factors become increasingly important for companies to achieve their long-term goals, and investors become more savvy about aligning their money with the things they’re passionate about, I expect that this industry—and our opportunities to participate in it as investors, consumers and even employees—will only continue to grow.