December 4, 2018
We recently sat down with i(x) investments President Christine Harada to gain her insight into some burning questions about impact investing and what’s going on in the world today.
“Impact investing is growing globally, and across all asset classes,” says i(x) President Christine Harada. In her view, impact investing is the “natural evolution” of traditional investing, as the industry shifts toward a more meaningful objective of generating social and environmental impact alongside financial returns.
The numbers support this assertion: since 2016, there has been a 38-percent increase in investors considering environmental, social, and governance (ESG) factors – and sustainable or ESG investing now accounts for one out of every four dollars under professional management in the United States. The total is a stunning $12 trillion in assets devoted to socially responsible investing.
Moreover, growth in the impact investment industry has been steadily trending upward for decades. Since the first biennial Report on US Sustainable, Responsible and Impact Investing Trends was released by the US SIF Foundation, we have witnessed an 18-fold increase in professionally managed assets within this category, from a total of just $639 billion in 1995.
“Eventually, impact investing will be the norm,” says Ms. Harada, “and we will reflect back on the nascent years as ‘I can’t believe we didn’t always do this’.”
Historically, many finance professionals believed that impact investing meant having to sacrifice returns in exchange for a “feel-good” outcome. As Ms. Harada succinctly puts it, “We at i(x) reject this myth.”
In fact, impact investing can be just as lucrative as traditional investing, and the data is beginning to reflect this reality. A report released by the nonprofit Global Impact Investing Network (GIIN) reveals that impact investors who seek market-rate returns can achieve them, depending on fund manager selection.
In their 2017 Annual Impact Investor Survey, the GIIN found that portfolio performance reported by respondents – the majority of whom pursued competitive, risk-adjusted market-rate returns – overwhelmingly met or exceeded investor expectations “for both social and environmental impact and financial return, in investments spanning emerging markets, developed markets, and the market as a whole.” And the outlook continues to be favorable, according to five-year repeat respondents in this year’s survey.
In terms of education in the space – which is crucial for growth – Ms. Harada says:
Impact-fund managers need proven operating processes but lack the resources to create them or train employees accordingly. Investors can help by convening impact-fund managers to share knowledge (e.g. ImPact, UN PRI, Big Society Capital).
Among impact investors, the flow of knowledge has enabled the industry to “become more sophisticated and to establish more consistent standards,” notes Ms. Harada, adding that “major investment-industry associations could also lend credibility to impact investing by defining the competencies needed by impact-fund managers and developing certification programs.”
Over the next five years, she predicts, the impact investing community will “coalesce on clearer measurement standards and common investment products,” with entrepreneurs receiving “greater training on what it means to have an impact-oriented company, with high-grade operations.”
In fact, just last month the International Finance Corp (IFC), along with the International Monetary Fund (IMF) and World Bank Group, set global minimum standards for credible impact investment, releasing a draft titled Operating Principles for Impact Management. This is a major step in the right direction. As Ms. Harada states, “Professionalizing the practice of impact investing [is] critical.”
Having previously served as Chief Sustainability Officer under the Obama administration, and currently a Fellow with the Los Angeles CleanTech Incubator where she is helping to develop the clean tech economy in LA, Ms. Harada is uniquely positioned to provide expert insight into the sustainability and environmental concerns that impact investing seeks to address.
When it comes to climate change, Ms. Harada describes herself as “much more of an optimist than a pessimist.” She remains a believer in “people’s tremendous capabilities to innovate during times of crisis” – pointing out that in Japanese the term ‘crisis’ itself is written using the characters “Danger” and “Opportunity.”
Indeed, Ms. Harada foresees “an exponential rise in innovations” to address the imminent challenge of climate change and highlights how this is starting to take place already. There is a “dramatic rise in social entrepreneurs who see market potential in energy, food / agriculture, transportation, manufacturing, and buildings,” she notes. Positive changes are happening.
But at this time in history, in addition to acting on financial incentives, our nation’s CEOs and business leaders have the responsibility to “include charity and wisdom as points on their moral compass, and steer their organizations around the dangers of injustice,” says Ms. Harada. Quoting St. Francis of Assisi, she adds: “Where there is charity and wisdom, there is neither fear nor ignorance.”
With visionaries like Ms. Harada at the helm, i(x) is proving that you can have profit with purpose – that you can both create profit and make the world a measurably better place.
To learn more, please watch Christine Harada’s recent interview on Cheddar.