NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Thursday, November 12, 2015

There is a growing appetite for investment products that focus on impact investing and social responsibility. Just last month, BlackRock announced that it would launch a new mutual fund, the Impact U.S. Equity Fund. According to Reuters the outcomes to be measured are “green innovation, corporate citizenship, high impact disease research, ethics controversies and litigation.”

The expansion of socially oriented indices and mutual funds are part of a larger impact investing movement, as niche markets become more fully integrated into the mainstream. Many of the new opportunities focus on impact-oriented index funds—an investment vehicle through which managed funds are invested in a group of securities (stocks, bonds or options). The S&P 500, for example, is a well-known index. Social impact-oriented indices, like all indices, aggregate a particular subset of securities that intentionally create positive social outcomes or avoid negative ones. They allow a greater number of investors to incorporate impact into their portfolios through comparatively lower risk vehicles like mutual funds, rather than higher-risk, early-stage, direct investments, which still characterize a good deal of activity in the impact investing space.

Indeed, there’s much to be enthusiastic about as the number of opportunities grow for businesses, government, large institutions, nonprofits and individuals to put their resources to work and simultaneously reach their financial objectives and make the world a better place. How can you and your organization get involved with impact investing? Here are a few examples of social impact indices and index funds currently open to investors:

Barclays Women In Leadership (WIL) Index

Barclays is offering Exchange Traded Notes (ETN) based on the WIL index. According to a July 2014 article in Fortune, WIL includes 85 U.S. based companies “that are listed on the NYSE or NASDAQ, have market capitalizations of at least $250 million and have a woman CEO or a board of directors that’s at least 25 percent female.” WIL “outperformed the S&P 500 Total Return Index by 1.2 percent per year over the past five years,” which supports the assertions of the two female directors who started the index that gender-diversity leads to better financial performance.