By Nicki Northcott, Client Advisor
As a wealth manager at a firm known for its strength in impact investing, I am often asked by friends, family members, and clients to demystify the topic. It’s no surprise given how there has been a major investment shift with more high-net-worth (HNW) and ultra-high-net-worth (UHNW) individuals and families wanting to leverage the power of their capital to drive positive change in the world. What used to be a niche is now a global market estimated at more than $30 trillion, according to the Global Sustainable Investment Alliance.
Investors seeking alignment of their values with their portfolios are often deterred by several misconceptions. The two most pervasive are the myth of concessionary returns and the perception that there is a list of approved “impact” themes. The reality is that you don’t need to sacrifice returns for impact, and because “impact” is defined by the client’s intent, investment opportunities are available across a wide range of themes.
It all starts with clearly identifying your values and applying them to your portfolio. Values alignment can be done gradually, over time; investors don’t need to take an all-or-nothing approach. Impact focused investments can be reflected in a percentage of your portfolio, a specific asset class, or utilized more broadly.
Busting Impact Investing Myths
Even clients who express interest in impact investing often approach the topic with skepticism or preconceived notions. The most prevalent myth is that investing for impact means sacrificing financial returns. According to a recent survey from the Global Impact Investing Network, 74% of investors said their impact investments yielded market-rate returns. With the right approach, you can grow your wealth and achieve measurable impact over time.
Another misconception is that impact investing is limited to a small number of “approved” or niche themes – most of which seem related to climate. In reality, impact investing spans a myriad of themes ranging from renewable energy and sustainable agriculture, to education, faith based initiatives, affordable housing, financial inclusion, gender equity, and many others. At Caprock, we have experience designing investment portfolios that advance our clients’ impact investment goals.
The Right Approach to Impact Investing
When a client expresses interest in impact investing, we begin by exploring their values and intent. We recently hosted a group of impact curious individuals for a dinner event in Seattle. We collaborated with Ethic, a sustainable asset manager, and guided them through a Values Mapping Experience.
“Sustainability means so many different things to different people, and the Values Mapping Experience is a great tool to get people thinking about the various causes they care most about. Allowing for customization and individual preference-setting is an important piece of helping families connect with their investments,” said Amanda Baker, who runs the Family Office Solutions team at Ethic. “We love partnering with mission-driven advisory firms to help amplify the role that sustainable investing plays in their practice.”
After assisting clients in refining their values, we help develop a strategy to reflect their priorities. This always involves a refined portfolio construction process that accounts for risk, return, income, & liquidity parameters.
Caprock takes a finance-first approach to impact investing. We perform rigorous diligence on impact investments the same way we do for traditional investments. There are no concessions made for the return expectations or the overall operational excellence of our investment partners.
Another critical factor in the success of impact investing is frequent reporting. In addition to the financial returns, Caprock quantifies the impact-specific metrics of clients’ investments. This not only creates a level of accountability, but supports a client’s engagement with, understanding of, and appreciation for the impact they achieve through their investments.
How to Get Started
Work with an advisor to understand your values, goals, liquidity constraints, and risk tolerance. Together, craft a customized asset allocation strategy that aligns with your unique values and objectives. Caprock’s process creates stronger, measurable, mission-aligned outcomes.
Impact investing provides a powerful way to leverage wealth for the positive change our clients want to create in the world. It offers the potential to grow wealth while creating a lasting impact. When you’re ready to get started with impact investing, Caprock is here to be a partner on your journey.
Looking for support in mapping your personal values with impact investing opportunities? Contact Caprock.
About the Author
Nicki Northcott is a financial advisor for Caprock based in Seattle. With over 20 years of experience in investment and wealth management, she has developed a passion for helping individuals and families align their wealth with personal values. Nicki takes a fresh look at her clients’ wealth management needs and applies a holistic approach. She understands that financial planning is not just about numbers, but also about personal values, goals, and aspirations. Through the creation of tailored portfolios, she helps them feel empowered and connected to their investments.
©2024 Caprock. All rights reserved. The Caprock Group, LLC (“Caprock”) is an SEC Registered Investment Advisor. This communication is not an offer or solicitation with respect to the purchase or sale of any security and is for informational purposes only. Information contained herein has been derived from sources believed to be reliable, but Caprock makes no representations as to its accuracy or completeness. Investment in securities involves the risk of loss. Past performance is no guarantee of future returns. Registration with the SEC does not imply a certain level of skill or training.
