A venture capitalist in Mumbai funds a start-up that connects smallholder farmers to satellite data to better manage their crops. A community development finance institution in Albany finances lead abatement for a low-income housing facility. A mutual fund targets blue chip companies that have women on the board and in the C-Suite. An individual investor sells the portfolio of oil and gas stocks she inherited and reinvests in wind, solar and energy storage firms.

Four very different investments, with different risk and return profiles expected. But in each case, there’s something else being considered – the social or environmental impact of an investment decision.

More and more, investors are exploring the idea of impact investing. Some of the largest and most sophisticated institutional investors look at a changing world and see markets that have failed to price in key risks and instability. Others see new opportunities driven by population growth, shifting consumer demand, emergent technology and climate change.

And still others are driven by the scale of our shared challenges and a recognition that it will take every tool and every resource brought to bear to surmount them.

At the U.S. Impact Investing Alliance, we pursue a vision that one day finance will be transformed such that measurable impact will be a factor in every investment decision. Collectively our partners represent more than 800 institutional and high net worth investors who are actively deploying capital with impact globally across asset classes and across the risk-return spectrum.

Whatever it is that inspires you to explore impact investing, you will find yourself amidst a growing movement. In fact, because of the pace of growth it can be difficult to describe how large the market for impact investing is – the answer is different depending on who and how you ask.

The Global Impact Investing Network (GIIN) conducts an annual survey that in 2017 found impact investors managed at least $114 billion in private market assets. US SIF, on the other hand, found $8.7 trillion in U.S. assets invested largely in the public markets to maximize environmental, social and governance (ESG) factors, pursue shareholder engagement strategies or support community finance.

These reports use very different methodologies to measure very different data sets, but whichever you choose to use, the momentum is in one direction. Since 2012, professionally managed assets to which ESG metrics are applied have experienced a 25% CAGR, up from 9% between 2007 and2012. Rising demand for impact has spurred the creation of new products achieving a wide range of impact objectives that are increasingly accessible, even to retail investors.

And there’s an even bigger wave about to break. Remember our individual investor from the first paragraph? She’s part of a $40 trillion transfer of wealth that will be passed on to women and millennial inheritors in the coming decades.

Survey data from U.S. Trust and others show that these groups are overwhelmingly interested in having investments that match their values. At the same time, studies from PwC suggest that generational wealth transfer can lead to significant asset attrition for financial advisors.

Engaging in conversations around impact investing early can provide a valuable opportunity to create and deepen client relationships. Is it any wonder then that mainstream financial institutions are taking notice?

Asset managers like BlackRock, Bain Capital and TPG as well as wealth platforms like Bank of America Merrill Lynch, Morgan Stanley and Goldman Sachs among many others have all been adding impact investing products and services to their platforms in recent years.

Ultimately, as the pool of impact assets grows, so too does the evidence base that these investments drive attractive returns. Take the meta-study from Oxford University and Arabesque Partners. Examining more than 200 academic papers, researchers consistently showed a positive correlation between ESG factors and business performance, ultimately leading to improved investment returns.

To be sure, there are important questions left to answer. How do we measure and report impact? When and how do the capital markets price social and environmental risk and opportunity? Will strong returns continue as more investors crowd in?

What is clear is that the market is moving. As investors, we have a chance to embrace the movement and together help show that the future of investing is impact investing.

The information, analysis, and opinions expressed herein are for informational purposes only. Nothing contained in this piece is intended to constitute legal, tax, accounting, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type.

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