Generation X leads rise in impact investing uptake

Majority of respondents to a survey by Calvert Impact Capital plan to increase allocation to impact investments, citing environmental sustainability, renewable energy and racial equity and justice as key motivating factors

US-based non-profit impact investment and advisory firm Calvert Impact Capital‘s latest biennial investor survey has found an increase in impact investment made over the last two years. 

The firm based its findings on investments into its Community Investment Note (Note), a fixed income security available to both retail and institutional investors that helps to finance organisations creating positive social and environmental impact in communities globally. 

The 2022 survey polled almost 800 individuals, including investors in the Note (47%), and others making impact investments elsewhere. It also included advisers that have made investments on behalf of their clients.

It found that 66% of respondents plan to boost their impact investments, rising to 70% of millennials, and 75% of ‘Generation Xers’. Almost half of respondents said they had recently invested to address climate change, 39% to address racial equity and justice, and 21% to mitigate the impact of Covid-19 on communities.  

This is compared to findings two years previously, in which 70% of survey respondents said they planned to increase their impact investments but only 19% had made a recent impact investment. 

Caroline Shenoy, senior officer for investor relations at Calvert Impact Capital, explained to Impact Investor that there were several reasons behind the uptick in investment. She said: “These are long-term trends we’ve seen accelerating, specifically the changing demographics of investors with intergenerational wealth transfer of tens of trillions of dollars from baby boomers to Gen Z, millennials and women who are much more interested in impact investing.” 

Environmental sustainability tops investor choice 

Shenoy added that data from both their last two surveys seemed “to indicate that Covid – as well as the racial justice reckoning in the US after George Floyd’s murder” were inflection points in people taking action with their portfolios. 

She explained that the growing awareness around climate issues appeared to be a motivating factor as well and that the massive growth of ESG investing and the movement of ESG into the mainstream had motivated people “to look for products with more authentic, measurable impact and (that) fortunately, more opportunities are accessible for investors now”.  

The 2022 survey revealed that more than half of the respondents who had invested in the Note said that it was their first impact investment and almost two-thirds said they had since also invested in other impact investments. 

“That’s probably what was most exciting to me,” said Calvert Impact Capital’s president and CEO Jennifer Pryce. “Investors are clearly treating the Community Investment Note as a core part of their portfolios while, over time, seeking out additional places to invest for impact. It’s an important validation point for us as we embark on new product creation, and it should be reassuring to the broader impact community that interest will continue to grow.” 

The firm expects the number of impact investments made across both respondent segments to grow over the next two years, with both Note investors and non-investors all reporting plans to increase the impact investments in their portfolios. 

From a sectoral point of view, environmental sustainability was the reason most cited for investing (51%), followed by renewable energy (34%), racial justice and equity (33%), gender equity (24%), and affordable housing (20%).  

In addition, 67% of investors explicitly responded that they invest “to positively influence climate change” (up 5% from 2020), which is echoed by findings from the financial advisors surveyed, 80% of whom reported they had made at least one new investment on behalf of their clients to address climate change since 2020. 

Barriers to investment 

Ease of purchase was cited by 39% of individuals, advisors and institutions as the main barrier keeping them from making additional impact investments, followed by questions around the authenticity of impact in some products (24%), because the minimum investment was too high (21%), and lastly, because there were not enough products available with a track record and appropriate data (19%). 

Shenoy said that most impact investment products were either limited to institutions, and to accredited, and high net worth investors and were challenging to purchase, giving the example of it not being easy to buy and hold these in a brokerage account.  

“They often address hyper-local or niche issues and are structured differently from traditional products, are more limited in scale and often, track record,” said Shenoy. “There need to be more accessible products, but more education is important too, especially distinguishing between the different iterations of sustainable investing, ESG, SRI or impact, etcetera, what they each look like in practice and what best practices are.” 

Shenoy said that “not enough time to do research” was also cited as a top barrier by respondents to increase their impact investments, and that education that made it easier for people to find and evaluate opportunities was needed. “And we’d emphasize that more education is not just important for investors, but financial advisors, brokerages, rating agencies, etcetera, – all actors, so that operationally, impact investing products can be more can be more accessible,” she added. 

The issue of a lack of education was echoed by a recent survey covered by Impact Investor of the broader environmental, social and governance investment sector, which revealed a yawning gap between investor interest in ESG investing and confidence that their portfolios reflect their interest. It found the main reason for the high interest/low confidence gap was investors’ lack of clarity about their own preferences and that greater innovation in client education was needed.