Advisors must collaborate with clients on impact investing, finds survey

A number of barriers and gaps between the two groups stand in the way of greater adoption

Advisors must collaborate with clients on impact investing, finds survey

ESG and climate change-oriented investments are gaining traction around the globe. Once mainly led by institutional investors, the space has gained increased attention and assets from retail participants seeking to support various causes through the capital markets.

But as a new report on impact investing illustrates, there is still a long way to go. In a report titled The Individual Imperative: Retail Impact Investing Uncovered, the New York-based Rockefeller Foundation and Longitude, a Financial Times company, drew from a survey of more than 200 retail investors and 300 advisory firms across North America and Europe.

Based on the survey, 78% of retail investor respondents are aware of the principles of impact investing and are actively investing in impact investing funds or products. Over half (55%) also plan to increase their impact investments from 4%-5% to 6%-20% over the next two years.

When asked for their top reasons to incorporate impact investing into their portfolios, roughly a third (29%) cited “a personal issue close to my heart,” and 25% said “to benefit my local community.” Another priority among respondents was “to generate better returns,” which made it to the top two choices of 32% of participants.

Most also appeared to be satisfied with their decision, as 84% said their impact investments were performing on par or well above their expectations in terms of investment returns. Satisfaction with the level of impact achieved was similarly high, with 79% saying their investments were on par or above expectations in that area.

Despite the promise that impact investing represents, the report found numerous obstacles standing in the way of greater adoption. One major hurdle is the lack of consistency: 35% of advisors said that the industry’s approach to measuring impact is either inconsistent or unclear, making it their top challenge when looking to make impact investments. That’s mirrored by the fact that eight in 10 investors said they found it difficult or extremely difficult to measure impact, apparently due to confusion over what a “genuine” impact investment is.

Another issue identified by investors was difficulty in sourcing credible advice, with 37% saying it’s their top barrier to further adoption — though this shortfall seems to be lost among advisors, 54% of whom believe they’re effective at articulating the benefits of impact-investing products. Retail investors also reported a widespread feeling that advisors fail to adequately understand their interests and intentions in pursuing impact investments.

Further illustrating investors’ need for credible advice, 73% of investor respondents cited “depth of direct impact investment knowledge and experience” among their top three reasons for selecting an advisor. Another 62% said they look for “broad knowledge of sustainable investing practices and strategies” within their top three qualities when selecting an advisor for impact investing; the ability to explain and quantify the potential impact of a product was equally prized.

Advisors appear to have some catching up to do to satisfy investors’ expectations: 32% said that a lack of in-house expertise in sustainable or impact investing was their greatest barrier to increasing their adoption. A similar percentage cited “a lack of experimentation with funds/funding models” as the most significant challenge to increasing their allocations to impact investing.


Follow WP on Facebook, LinkedIn and Twitter