Impact investing a growing trend with family offices, says Wermuth
Family offices are increasingly recognising the advantages of impact investing post financial crisis, says Wermuth Asset Management.
The German alternative investment advisory firm, is keen on the theme of impact investing and has noticed an increased interest from investors looking for both attractive returns and a way to make a positive impact with their financial actions.
Previously, impact investing has been primarily on the radar of charitable organisation and foundations, whose key aim is to positively contribute to their chosen mission. Many of them had started doing so through impact investments, since the returns from traditional investing were not enough to fund their charitable missions.
The concept of impact investing first originated in the US. The term refers to investing with the specific objective of achieving a measurable positive social and/or environmental impact as well as financial returns. It channels capital to ventures that use market-based mechanisms to address current global challenges.
Impact investing spans a broad range of themes and sectors, such as access to finance and education, affordable housing, social media, clean energy and healthcare. The majority of opportunities can be found in private equity and debt, but there is also a growing range of products across other asset classes.
The impact of these investments can be easily measured, and so can the risks of not taking social and environmental issues into account. For example, a recent article published by the Financial Times states that the additional risk to an investment portfolio that does not take into account climate change can be up to 10%.
At the same time, the returns from impact investing are often higher than those from traditional investments over the long term. Wermuth says this type of investing can also be used as a hedge against inflation, since the long term costs for such innovations as solar panels, for example, are known in advance.
Sarah Caygill, member of senior advisory board at Wermuth AM, says impact investing “seems to be the next big theme for family offices globally.” Investors are particularly showing an interest post financial crisis, which has left them feeling let down by banks and traditional asset management.
One of the sectors that plays a significant part in the space is clean technology. This includes recycling, renewable energy, information technology, green transportation, lighting and various energy efficient appliances.