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

Wednesday, March 11, 2015

When it comes to managing money, the rich are increasingly pursuing more than just financial rewards and going full tilt on the idea of using investments as a tool for social and environmental change.

A growing number of high-net-worth individuals, family offices and private foundations are placing their entire portfolios into impact investments that attempt to drive positive and measurable social or environmental outcomes with various levels of financial returns.

These investors are practicing “total portfolio management” or, as it is sometimes called, “100% impact” investment strategies, according to Jed Emerson, chief impact strategist at ImpactAssets, a nonprofit financial services firm based in Bethesda, Md.

More wealthy families are rethinking the meaning and purpose of their capital and their family legacies, he says. “When you have or receive a significant amount of wealth, it raises questions about what to do with it,” says Emerson, who serves as an advisor to four family offices that are executing 100% impact investing strategies.

Major life experiences, such as liquidity events and inheritances, can cause families to start reflecting deeply about what they’re doing with their money and how to deploy or redeploy portions of their capital in ways that truly support their values, he says. That can cause a re-examination of what they’re doing with the rest of their assets and lead to the decision to start transitioning their entire portfolios to impact investments. “Once you ask the questions, ‘What is the purpose of capital?’ ‘Why are you alive?’ and ‘What is it that you’re trying to do?’ you come to a conclusion—a halfway response is not adequate,” says Emerson.

Full-tilt impact investing may be the latest evolution of a concept that dates back to the 1950s, when faith-based organizations applied socially responsible investing (SRI) screens to their public equity investments to avoid businesses that were selling tobacco, alcohol, munitions and other products that were contrary to their beliefs—so-called “negative screening.”