Local issues attract some to social impact investing, as the rise of place-based investment models shows. Others, however, take a broader approach, letting global megatrends – such as population shifts and strains on natural resources – guide their socially conscious investment choices. “Megatrends are a set of interconnected patterns and movements that impact societies and countries,” said Marsal Gifra, principal and CEO of Megatrends Watch, a think tank for future research. “The majority of megatrends in the world today center around demographics, economics and technology. Within those general areas are major trends that can be influenced by the policies and decisions of governments, companies and investors.”
Impact investing has been gaining traction in large part because global sustainability megatrends are getting more attention, says Amy O’Brien, managing director and head of responsible investment at TIAAInvestments – Nuveen. “Lots of stakeholders are seeking better outcomes for their capital and seeking ways to have double-bottom line outcomes for their portfolios,” O’Brien said. “They’re seeking traditional positive portfolio outcomes and seeking to attain social and environmental goals at the same time.”
Six Trends To Keep An Eye On Right Now
The trends that are likely to be significant in the next several decades include:
- Sustainable development is growing
To address global issues such as poverty, climate change and inequality, in 2015 the United Nations adopted the 17 goals outlined in Transforming Our World: the 2030 Agenda for Sustainable Development. “The sustainable development goals [SDGs] are big targets to meet by 2030, so they are always important to governments and nonprofits,” said Amit Bouri, CEO of the Global Impact Investing Network (GIIN), a nonprofit with the mission of increasing impact investing. “A pleasant surprise is that these goals are influencing leading financial services companies such as global banks and institutional investors.”
Impact investors’ interests are naturally in tune with many of the U.N. goals, such as developing clean energy, eradicating hunger and providing affordable health care. The GIIN recently researched numerous investment funds to measure how aligning with the SDGs is helping them develop impact strategies and goals, communicate with stakeholders, and attract new capital.
- Populations are getting older
The U.N. anticipates the number of people aged 60 and over to more than double by 2050. This demographic will then account for nearly a quarter of the world’s population in every region other than Africa. “An older population creates challenges around issues such as health care, employment, housing and subsidies,” Gifra observed. “Investors can take into account those issues when choosing where to invest, such as looking at how companies are making decisions about providing health care. It’s important to look at which companies are embracing global megatrends and which are making short-term decisions, particularly for long-term investments.”
- Emerging economies are burgeoning
In Charting the Course: How Mainstream Investors Can Design Visionary and Pragmatic Impact Investing Strategies, the World Economic Forum estimates that close to half of the world’s GDP growth between 2010 and 2025 will come from emerging markets. “Emerging economies provide opportunities for impact investing, but it’s important to see them as consumers as well as producers,” advised Gifra. “We estimate that the middle class in emerging economies – especially in Asia – will multiply by three times by 2030, while the middle class in Western countries is shrinking.” Gifra recommends evaluating how companies in emerging economies treat their employees when making investment decisions.
The investment environments in emerging economies such as India, Southeast Asia and Latin America have been growing, Bouri says. “Access to capital drives innovation in places like Silicon Valley, while in other parts of the world innovation lags because of the lack of capital,” he explained. “Impact investors in emerging economies are making more microfinance investments into entrepreneurs. We’re also seeing venture capital investments into emerging markets that will contribute to more innovation globally.”
- The climate is changing – and constraints on natural resources are developing
The U.N. estimates that the world will need 30 percent more water, 40 percent more energy and 50 percent more food by 2030. According to Bouri, there’s an increasing awareness that the effects of resource scarcity and climate change are disproportionately felt by lower-income people. “Impact investors are looking for companies that are doing things to mitigate these effects and to slow down climate change by investing in things like sustainable agriculture and forestry,” Bouri said. “There’s also a deep connection between climate change and social justice, such as making sure poor people have access to clean water, clean energy and safe housing.”
“Solar-preneurs” in sub-Saharan Africa, for example, provide solar energy to households and businesses. Such initiatives stave off climate change by reducing pollution, while also producing cleaner, healthier, more consistent power for customers. And access to light for studying or working after dark gives beneficiaries new opportunities to improve their lives.
Impact investors look at companies to see if they have long-term commitments to social responsibility and to overcoming the impacts of climate change, says Gifra. “They need to know that these companies have a real strategy and are not just spouting words,” Gifra said. “For example, Dell is reusing entire computers and reassembling them to eliminate waste. Apple has a zero-emissions strategic goal, and Adidas is already making shoes with recycled plastic removed from the ocean.”
- Data is being democratized
The ability to capture more and better data, along with growing data transparency, will increasingly help people understand the power of impact investing, says Bouri. “People will ask for financial performance metrics and be able to find out if the impact of their investment is in alignment with their values and goals,” Bouri said. “For example, a family can look at the rate of return on their investment and how it’s creating an affordable housing project. That would be a powerful lever for more impact investing.”
- Wealth is being transferred
“While this is a generalization, millennials tend to be very interested in sustainability and in diverse issues including global inequality,” said Bouri. “Millennials see the purpose of money as more than just making money, so when they begin to inherit money there’s a tremendous opportunity to make this generation aware of how they can put their assets to work to have a profound impact on the world.”
An estimated $30 trillion in financial and non-financial assets is expected to transfer from the baby boomer generation to its heirs over the next few decades, particularly in the West and Japan. “As we look to the future and how these big tectonic trends are reshaping the global economy, it’s important to underscore that these megatrends are increasing the need and the opportunity for impact investing to have a big impact on the world,” Bouri noted. “At the same time, these megatrends are driving more capital into impact investing.” Nuveen takes several tacks in integrating global trends with their investment strategies.