Money For Good: $120 Billion Impact Investing Market Opportunity

This is a guest post from Hope Neighbor, founder of Hope Consulting which recently released the report Money For Good.

Read Part I.
Read Part II.

By Hope Neighbor

On Friday, I talked about principles to guide efforts to improve the quality of charitable giving. Today, I’ll talk about another opportunity to achieve social impact – by addressing the $120 billion market opportunity for impact investments for individuals. Today, these dollars are “hiding in plain sight,” in individuals’ investment accounts.

In addition to charitable giving, the Money for Good research analyzed Americans’ demand for impact investments, and what was required to meet that demand. In other words, what do American investors need to make more impact investments? To get at the answer to this question, we surveyed 4,000 Americans with household incomes of $80,000 and above. Here’s what we found:

To start, there’s a strong, untapped appetite for impact investments. Almost 90 percent of the individuals surveyed expressed openness to impact investing. We calculated a market opportunity of $120 billion for these investments, with half of that opportunity in investments of under $25,000. What’s more, even the very affluent are interested in smaller investments: over half those with household income of over $1 million a year still want to make impact investments of $10,000 or less. Long story short – there is a very large market for small impact investments that is largely unmet in the market today.

In addition, we found that Americans won’t cannibalize their charitable giving in order to make impact investments. When asked where they would draw the funds to purchase impact investments from, only 10% said that they would pull the money from their charitable giving.

Finally, we found that individuals were more receptive to impact investments if they are positioned as investments, not alternatives to charity. Americans are 1.8 times more likely to make an impact investment if they’re placed in an investment mindset rather than a charitable one.

The Money for Good research yielded several findings that point to how to best open up the retail impact investing opportunity. First, Americans want to receive information from and transact through their standard financial services provider; financial advisors were by far the top place investors would turn to learn about impact investment opportunities.

Second, Americans break out into six specific investor segments. The segments include Safety First, Socially Focused, Quality Organization, Hassle Free, Personally Recommended, and Skeptics. The first three – Safety First, Socially Focused, and Quality Organization – represent over 80% of the impact investing market opportunity we identified. Each of these segments has different core motivations for making impact investments – Safety First prioritizes downside risk protection, Socially Focused prioritizes the cause the investment is addressing, and Quality Organization investors want to invest with a reputable organization that has a strong track record and business plan.

Third, we found that there are five barriers to investment that are common across all those open to impact investing. Interestingly, the five barriers are all related to the immaturity of the market, not the social or environmental impact investments are having.

Building on these findings, there are seven steps that we believe will help to open up the retail impact investing market:

1. Clarify what impact investing means for individuals and professionals
2. Structure products with small initial investments (<$25,000)
3. Tailor products and messages by segment, to appeal to different motivations
4. Make opportunities accessible to retail investors, as many existing impact investment opportunities are open only to accredited investors
5. Position these as investments, not as alternatives to charity
6. Address market immaturity barriers, to provide confidence to investors
7. Build awareness of impact investing overall and the specific opportunities available today with investors and their advisors

We’ve heard many times that opening the retail market will be too hard – too hard even to try. In conversations in the past six weeks, that’s not what we’ve heard from those with deep retail investing or banking experience. Instead, we’ve heard that there are gaps in knowledge that make it difficult to know how to address the retail impact investing opportunity today. More must be understood about financial advisors’ incentives, retail distribution networks, and how impact investments can be structured and sold to accommodate those incentives instead of being defeated by them. We also need to understand the economics and expected social impact of different retail impact investing alternatives. But once the sector is armed with this knowledge, we believe that it will have the insights that it needs to attack this $120B market opportunity “hiding in plain sight.”