If Clients Ask About Impact Investing, Will You Have an Answer?
By Roger Nusbaum, AdvisorShares ETF Strategist
As we’ve looked at in the last couple of posts, the nature of investing is always changing. Changes come from market conditions, access to investment strategies (mostly though ETFs) that were not previously accessible and from client inquiry.
No advisor wants to appear unprepared when a client about some strategy or investing idea. One relatively new investment concept that will gain more traction is the idea of impact investing, also known as sustainable investing. This will be unfamiliar to many advisors but is gaining traction.
To this end Morgan Stanley created the Institute for Sustainable Investing which seeks to “mobilize capital to meet pressing global challenges.” Taking the idea a little further, capital can be deployed across all asset classes, not just equities, with the objective of making a positive impact socially, environmentally or both while also seeking a strong risk adjusted return for investors.
Where concerns over things like the wealth gap and the fortunes of the 1% have gained mainstream awareness, sustainable investing can also be an outlet to make a positive impact by sharing investment profits with charitable foundations and other organizations who commit to projects like water treatment, agricultural projects and generating electricity in areas where these resources are hard to come by.
There are also investment implications for sustainable investing with the companies who will be building the water treatment, agricultural and electricity generation projects in these hard to come by areas.
Morgan Stanley estimates that global demand for food and energy will go up by 50% from current levels by 2030 and water demand will increase by 40%. There will be trillions of dollar spent in pursuit of meeting that increased demand.
There are obviously no guarantees that share prices of the engaged companies will outperform the broad market but sustainability creates a multi decade, multi trillion dollar tail wind and clients will increasingly ask about this theme, they will want their advisors to know about sustainable investing and want to hear about what portion of their portfolio is devoted to sustainability.