Social Impact Investing: Still Small, But Growing

Social impact investing is continuing to grow, according to a report in yesterday’s New York Times.

This growth in socially-minded investment may increase the working capital available for social impact bonds. According to the story:

Certain areas are growing rapidly, like green bonds. Since 2007, about $60 billion worth of green bonds have been sold, according to Marilyn Ceci, a managing director and the head of green bonds at JPMorgan Chase. But $37 billion of that came in 2014. One prediction at a U.S. Trust conference on Wednesday put that amount at more than $100 billion this year.

Why do people invest in an area that does good but can be complicated to understand and has a reputation of modest returns? The reasons are varied.

Banks make these investments because they help fulfill the requirements of the Community Reinvestment Act of 1977, which requires them to meet a range of credit needs, “with the added bonus of qualifying for great P.R.,” said Robert T. Esposito, a lawyer at Orrick, Herrington & Sutcliffe. “If you’re a foundation, you can meet your 5 percent distribution” of assets as required by law, he said. “Or if you’re an impact investor, you must be willing to trade off some returns.”

But Andy M. Sieg, head of global wealth and retirement solutions for Bank of America Merrill Lynch, views this as a chance for retail investors to drive the creation of a new investment category. “We’re in the early stages of an innovation cycle,” he said. “Client demand emerges. Advisers become stimulated by this demand. It drives product creation. It’s happened again and again, and it’s taking place in the era of impact investing.”

He said Merrill Lynch now has $9 billion in social impact investments, compared with $6.4 billion last year. (Over all, the firm has more than $2 trillion in assets.)

For more, see the full article.


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