The report identifies key product and service offerings by major private banks in these regions. It also highlights key strategies adopted by wealth managers, fund managers and governments worldwide to target impact investors. The analysis is based on extensive primary research with key experts in the field to determine current trends and future expectations, enabling financial advisors to remain competitive in the wealth management industry. Impact investments have become a new investment option among HNWIs and UHNWIs worldwide. They have significantly increased in market size, despite their relatively recent development in 2007. JP Morgan and Global Impact Investing Network (GIIN) estimated the market size of impact investments at around US$46 billion in 2013. In the UK market, impact investments valued GBP200 million in 2014, and are set to grow to GBP1 billion by 2016.
While 67% of impact investment funds are headquartered in Europe and North America, 70% of impact investment capital is being channeled towards emerging markets. Microfinance and financial services combined accounted for 42% of global impact investment funds in 2014. This was followed by energy at 11%, housing at 8% food and agriculture at 8%, and healthcare at 6%. Impact investments are becoming more important among European governments and UHNWIs. Demand for socio-economic impact investments is growing in emerging economies. Limited availability of developed social enterprises is a barrier for impact investment growth.
Different investment types – ‘finance first’ or ‘impact first’ – make the asset rather complex and difficult to value. This has led to the development of a separate wealth management division in private banks, often known as sustainable investing, responsible investing, or social finance divisions. While the majority of impact investment supply-side participants – HNWIs, corporate investors, asset managers, wealth managers and private banks – are based in developed countries such as the UK and the US, the majority of demand-side participants are based in emerging countries such as South Africa, Nigeria, Kenya, China, Brazil and India. This structure generates gaps in the wealth management market, requiring further research. This report aims to provide an in-depth analysis of key market insights and the future outlook of impact investment over the forecast period.
This report covers areas like attitudes of wealth managers and private banks to targeting impact investors, a global market snapshot of impact investments, strategies for targeting impact investments and key market regulations as well as high-profile HNWI and UHNWI impact investors. The research helps understand significance of impact investments in the wealth management sector, and recognize how this asset class can have potential benefits to private banks. Be informed about latest market trends on impact investment products and services offerings in the six regions studied, and draw competitor analysis, Be aware of attitudes of wealth managers and private banks towards the future outlook of impact investments and Make informed decisions about impact investment growth and build better business strategies to target impact investors with the help of this report. Comprehensive table of contents and more on Insight Report: Impact Investments 2015 – Global Opportunities here.
Two major hurdles to the broader adoption of impact investing are being cleared by structural changes in the capital markets and new guidance issued by the Department of Labor that makes it easier for retirement plans to offer environmental, social and governance (ESG) solutions to investors planning for retirement.
In a new whitepaper, “Impact Investing: The Performance Realities,” Merrill Lynch analyzes these structural changes and the growing body of evidence showing that investors can do well financially by investing in organizations that are doing what’s right for the environment and society. The paper tracks key developments in the impact investing arena, pointing to rapid growth and innovation that are due largely to growing client demand over the past decade, as well as the improving quantity and quality of ESG data.
A recent Merrill Lynch client survey of 1,500 U.S. investors found that awareness and education about impact investing are also among the keys to its continuing growth.
• Many impact investments can be used in a market-based portfolio without a significant increase in risk, and can serve to lower overall portfolio volatility and aid in the risk adjusted profile of portfolios.
• The risks of many impact investments are not necessarily greater than their traditional counterparts, but they often are different – and understanding those risks is critical for investment decision-making.
• Most impact-oriented, diversified public equity and fixed income strategies can provide market-like returns – and some more-targeted public and private strategies may even outperform.
• Merrill Lynch found wide recognition that companies lacking good governance, which fail to consider environmental risks or disregard community impacts, are ignoring risks to their bottom line.
• New public-private financing structures are gaining interest from not-for-profit organizations, policy makers and government issuers, and there’s been a marked increase in social impact partnerships, green bonds and direct capital investments in thematic ventures such as health and energy.
• Institutional investors, who were among the first to incorporate impact investing criteria into their mandates, still account for the largest share of assets. Recent substantial growth in indexes, network services and other collaborative or aggregative sources of social responsibility data are now making it possible for all investors to use ESG data, along with traditional financial analysis, to make informed decisions about investing in sustainable companies.
• Younger investors – millennials under the age of 35 – are leading the way in the demand for impact investing investments. More than any other age group, they are interested in investing in companies that share similar values and are more likely to believe they can achieve competitive returns (59%).
• Millennials also place greater importance on the issues they consider important than on financial returns (47%).
• Nearly one-half (48%) of the 1,500 investors surveyed would be more likely to incorporate impact investing strategies into their portfolios if assured it didn’t mean sacrificing returns.
• Three in five (62%) investors aren’t yet convinced that impact investing investments can deliver competitive returns.
• Approximately half of investors would be spurred to add ESG investments to their portfolio if they better understood them.
• Fewer than 25% of investors are aware of the impact investment options available to them.
Bank of America’s wealth and investment businesses launched their impact investing platform in August 2013 with a range of investment offerings across asset classes and themes, extensive insight and thought leadership, and a major commitment from Bank of America totaling more than $70bn in lending, financing and other investments, as well as $100mn in grants, over a 10-year period.
As of September 2015, Bank of America’s investment businesses had more than $9.7bn in assets with a clearly defined impact investing approach. Of these assets, approximately $8.1bn are assets under management and $1.6bn are advised assets. These businesses include Merrill Lynch Wealth Management, U.S. Trust, Merrill Edge and the institutional investment business.
While there are many impact strategies that have long track records, as the investment approach is expanding, there are many strategies that may have limited performance history. Data availability and standardized frameworks are still evolving for the private and public impact investments industry and will be subject to multiple improvements in coming years. As such, reporting around the particular impacts of impact investing strategies are subject to the manager’s definition of those results, and investors should be aware of these issues prior to investment. Finally, as impact investing approaches are being more widely integrated into investment processes, it is important for investors to acknowledge that certain portfolio managers and other investors offering solutions in this space are still in their developmental stage, and investors need to be aware of these risks.
Calvert Investments, Inc., a global leader in responsible investing, announced today the introduction of two new indexes in the Calvert Responsible Index Series: the Calvert Developed Markets Ex-U.S. Responsible Index (CALDMI) and the Calvert U.S. Mid Cap Core Responsible Index (CALMID).
The indexes are driven by the Calvert Research System, a proprietary research platform that synthesizes multiple sources of non-financial data, including environmental, social, and governance (ESG) data. Calvert analysts identify and weight the ESG factors that are most material within each of 156 sub-industries, then rate and rank every company to build the list of index constituents. The firm continues to build upon its global responsible investment research expertise with the newest additions to its responsible index series and related low-cost index funds that will track them and institutional separate account products.
KPMG has today warned that investment managers must invest in big data and real-time analytics, or risk being caught short in 2015, as the firm predicts an increasingly volatile geopolitical landscape.
Tom Brown, global head of investment management at KPMG, said, “While geopolitical risk will always be in the fabric of investment management, it is the ability to manage and quickly respond to these developments that defines success.
Tom Brown adds, “January’s fund performance figures will reveal the industry’s winners and losers in terms those that have been able to respond to the spate geopolitical risks over the past quarter.
“Undoubtedly those who have been caught short will be reflecting on the quality of their data, modelling and ability to respond quickly. However it is equally important for those who have performed well not to be complacent. They must look at whether their existing data, systems and processes are able to cope with the increasing volatility.
“Businesses are so focused on cyber attacks by organised crime that it is easy for them to ignore the possibility of being targeted by groups wanting to make a political point, possibly even with backing from a hostile government,” says Malcolm Marshall, UK and global lead in KPMG’s cyber security practice.
“Over the past five years the international business community has seen a number of incidents where websites have been hacked so that political messages can be uploaded where they will receive widespread exposure – the Syrian Electronic Army is just one example, amongst many. Hacktivists are certainly more active during periods of international tension, but it’s the next step that businesses should be wary of.
“Cyber attacks are becoming part of international conflict and it seems that probing cyber attacks are likely to be the first phase in the hostile phase of future conflicts. The well-worn phrase about who has their ‘finger on the button’ has taken on a new meaning and this is something that banks, financial institutions and global businesses need to consider. After all, the ability to disrupt electronic trade, divert funds, or overload IT systems so that transactions cannot be completed, can have an effect that goes far beyond the geographies where disputes are raging.
Which are the Riskiest Countries for Business?
The 2014 FM Global Resilience Index finds Norway, Switzerland and Canada top the list of nations most resilient to supply chain disruption, one of the leading causes of business volatility. The first-of-its-kind Index, commissioned by FM Global, one of the world’s largest commercial property insurers, is an online, data-driven tool and repository ranking the business resilience of 130 countries. More than a year in development, the Index is designed to help executives better assess and manage supply chain risk. The Index finds Kyrgyzstan, Venezuela and the Dominican Republic as nations least resilient to supply chain disruption.
• The United States and China are each divided into three separate regions because the geographic spread of these countries produces significantly disparate exposures to natural hazards. All three regions of the US rank in the top 25 and China’s regions rank 61, 66 and 75. China’s weakest grouping, which includes Shanghai, ranks particularly low as a result of poor risk quality due to acute natural hazards.
• The biggest riser since 2013 is Bosnia and Herzegovina, climbing 19 places due to improvements in the country’s political risk and in the quality of local suppliers.
• Bangladesh is one of the top fallers due to declining quality of both natural hazard risk management and fire risk management.
The Christie Administration has urged the Federal Emergency Management Agency (FEMA) to grant New Jersey residents and businesses who suffered property damage or destruction in Superstorm Sandy an additional six-month extension to file a complete flood insurance claim, or proof of loss, in connection with the storm. The Administration is asking that the filing deadline be extended from April 28, 2014 to October 28, 2014.
A proof of loss is a form used by the policyholder to support the amount they are claiming under the policy, which must then be signed, sworn and submitted to the insurance company with proper supporting documentation. An extension of the filing deadline would give homeowners and business owners additional time to evaluate newly discovered damages and costs, obtain proper documentation, and submit detailed information in a supplemental proof of loss.
FEMA has twice extended the deadline for New Jersey residents to file a proof of loss. In November 2012, FEMA extended the 60-day timeframe for filing Superstorm Sandy-related proof of loss documents to October 29, 2013, one year from the date Superstorm Sandy struck New Jersey. In October 2013, the deadline was extended another six months to April 28, 2014. If FEMA grants the State’s request to extend the deadline a third time, New Jersey residents and business owners would have until October 28, 2014 to submit a proof of loss.
The agreements will officially launch two new projects for Solomon Islands, one to improve electricity supply and reliability in Honiara, and the second to help protect communities against growing risks from climate change and natural disasters.
“This launch will kickstart two very important projects for our country – projects that will help improve electricity supply, a priority for the Government and people of Solomon Islands, and that will enable communities to be better prepared for climate change and natural hazards,” said Rick Houenipwela, Minister of Finance and Treasury for Solomon Islands.
“I am pleased to be launching these projects on behalf of the World Bank as it continues to expand its support for Solomon Islands, by way of projects that support national priorities, such as reducing risks from climate change and natural disasters, and improving power supply for households and businesses,” said Franz Drees-Gross, World Bank Country Director for the Pacific Islands.
The Community Resilience to Climate Change and Disaster Risk in Solomon Islands Project (CRISP) will invest US$9.1m in climate and disaster risk information and early warning systems, which can save lives in the event of a tsunami or other natural hazard, as well as community projects in climate change adaptation and disaster risk reduction, such as climate proofed buildings, in up to four provinces.
The agreement was also signed for US$13m in new financing for the Sustainable Energy Project (SISEP), which is working to improve the reliability and efficiency of electricity supply for the 65,000 residents of Honiara.
“Efficient, affordable and reliable electricity access is essential for every aspect of development from running hospitals to doing business, while the Climate and Disaster Resilience Project is vitally important in a country where communities face very real, very present threats from natural disasters and climate change, especially in the remote Outer Islands,” said Drees-Gross.
The SISEP project began in 2008 and has supported the financial turn-around of the Solomon Islands Electricity Authority (SIEA), and improvements in power reliability in Honiara. During the course of SISEP, the annual total length of time that a customer is without power in Honiara has fallen by more than 80 percent, from 864 hours in 2007 to 124 hours in 2012.
This new funding will build on SISEP’s achievements and enable investments to further strengthen power systems, in particular through improvements to the grid in Honiara.
SISEP is being funded through US$13m in grants and low-interest credits from the International Development Association (IDA). CRISP is funded through a US$7.3m grant from the Global Environment Facility for Least Developing Countries, with a further US$1.8m from the Global Facility for Disaster Risk Reduction and Recovery Grant through the European Union Asian, Caribbean and Pacific Natural Disaster Risk Reduction Program.