To begin with, a small token of acknowledgment to all the naysayers who coined the “money is the root of all evil” - Ha! We say, “money can be the antidote to all, well, most evil, with impact investing.”
Modern Investment Bankers are on a mission to save the planet and society, and still, make a top dollar while they are at it. The impact investing movement has gained significant traction in the wake of investment banking giants with worldwide operations stepping into the fray. As of 2016, the capital deployed for impact investing stood at $77bn, McKinsey says this has only multiplied since then. The challenges that stood in the way, a highly fragmented segment with difficult evaluation processes, have been cleared. Investors no longer fear the opacity of the risks involved but are making more informed strategic decisions for the greater good. Buoyed largely by the immense focus on sustainability and social upliftment over the past few years, investment banks are introducing new products and services for high net individuals to invest in this exciting new area that promises more than just good returns.
At a basic level, impact investing is the deployment of capital into enterprises that work to deliver on social upliftment and/or environmental sustainability or governance, providing benefits to the target demographic segment or geography, while generating returns on the said investment through various avenues including tax benefits, subsidies, concessions and of course, the returns on the investment itself. However, some challenges persist.
While this may sound relatively easy to the uninitiated, creating structured investment products for impact investing remains a key challenge mainly because of several factors; Lack of clarity on capital deployment for one, constantly shifting geopolitical conditions for another and performance benchmarking of funds dedicated to this segment as well, add to the present hurdles. That hasn’t, however, stopped some of the behemoths of investment banking to step up their game in impact investing.
Take a name, and they’re already there. What used to be a mainstay of non-profits like Rockefeller and Bill and Melinda Gates in philanthropy today encompass a complete investment banking mindset in almost every global, large scale investment bank including Bain Capital, BlackRock, Credit Suisse, Goldman Sachs, BNP Paribas and JP Morgan Chase, to name just a few. Another important factor in the impact investment landscape is the focus on different, non-conventional channels across a wide variety of asset classes, microfinancing, to sectors like carbon emission control and social governance in volatile regions. Existing budgets from philanthropic giants are increasingly being matched and surpassed by impact-oriented investment bankers who invest for returns on capital deployment alongside dividends on social or environmental upliftment in the areas that they operate in.
This is where it gets really interesting for aspiring investment banking professionals of tomorrow. According to reports on CNBC, a humongous $ 12 trillion is invested with socially responsible projects. Despite this, it is showing no signs of cooling down with Socially Responsible Investments growing at a staggering 40% CAGR, YoY, a trend that has been consistent since 2016. In essence, it means 1 out of every four assets under management is an ESG (environmental, social, governance) investment in the US. Surely a lead for other countries across the world to follow. More retail investors, young and old, are also opting for certain components of socially responsible projects in their portfolio. Where fund managers point toward, investment bankers follow, and the socially conscious ethos is all-pervasive. It seems for now, in the world of impact investing, it is in equal measure and with every stakeholder - the investors, the bankers, the beneficiaries and the governments.
The entry to the hallowed doors of investment banking is anything but a cakewalk. It begins with understanding the mechanisms and dynamics of the global impact investing scenario and grows with close alignment with the norms and, regulations and governance policies across the world that mandate and manage fund flows into impact investment projects. The need of the hour, however, are skilled investment banking professionals with transnational expertise in designing, executing and managing these large investment portfolios. It’s a skill that needs to be acquired, and of course, to step into a jet setting career in impact investing, the first rung on the ladder is getting certified in Investment Banking Skill Capabilities by one of the world’s foremost and most prestigious investment banking councils. Over to you, the reader, for your next step.