My career started out different from most of my colleagues; I started my first business at 20 and have tasted success and failure along the way. This makes my experience different to those around me, and the thought of investing with the intention to make an impact at first seemed foreign to me. Why would one want to put their money to work in a way that compromises their returns? I am biased, of course. I invest in oil, have been involved in businesses that import one-time-use products and have recently completed a master's that has little to no content on investing without regard for profit. In fact, most of the education I received focused on two factors: risk and reward. How can a third be relevant? But as I will try to explain to you, it is relevant, whether you intend it or not.

So, what is impact investing? Impact investing is a subsect of responsible investing. Closely related to philanthropy, but with the intent to create some form of return. Where philanthropy is the art of charitable giving, the intent of impact investing is a well-thought-out process that aims to provide social or environmental change whilst affording sustainability for your nest egg. But what is responsible investing, I heard you ask. Great question.

Socially responsible investing started back in the 70s when investors put their money where their mouth was and tried to counter the effects of the industry at the time. Opposing businesses supporting South Africa during apartheid, promoting more fuel-efficient cars, and so on. This later evolved into ESG investing, which has led to controversy and subjectivity. How can firms such as Nvidia feature on sustainable indexes whilst their use has been prevalent in the crypto mining industry, where many old coal power plants are being reignited in the ever-evolving chase of power? Do they force this behaviour? No, but by tailoring their chips to be utilised in such a way, they most certainly enable it.

Today, many industry and charitable organisations help investors understand socially responsible investing and, more specifically, impact investing. Here in Australia, we have RIAA; globally, we have GIIN, as well as plentiful funds and advisors taking up the challenge. But, getting to the paper's title, what the heck is impact investing? And can it be subject to greenwashing as ESG fell prey to?

Well, impact investing itself is the direct counter to most ESG arguments. Where ESG is an objective overlay that may or may not apply to you, impact investing seeks to involve the investor with their biases and views. Take me, for instance; I am an ex-smoker who will tell anyone who listens to the virtues of giving up and, therefore, will likely take no part in investing in and supporting tobacco-related industries. I will, on the other hand, invest in oil. My personal belief system is such that I understand the social benefit developing nations experience from having access to oil and the products it enables. We all rush to criticise oil for its use in the transportation sector, yet if we look around us, it has enabled many more industries. The plastics on the keyboard I type, the polyester in my clothes. I understand the trade-off and consciously make that decision. Yes, we need to reduce auto emissions, but removing oil from the global supply chain entirely will disadvantage billions of people.

My intention is not to sell you the virtues of oil but to highlight the importance of the responsible investing spectrum and impact investing itself. It is not objective like ESG, but subjective. It affords the investor the ability to choose what and why they make investments. Can I invest in oil exploration whilst also investing in companies such as Warby Parker that offer social good? Can my belief system support the trade-offs needed for the greater good?

I hope you can now see that we are all, whether we like it or not, placed on a spectrum. On one side is a pure profit play, where our portfolio of investments has no social impact, and on the other end, we are engaging in philanthropy. In between, we can apply filters for those industries we don’t wish to partake in or screen for those that we do. Most importantly, we can intentionally seek out investments that provide the type of impact we want to see in the world.

No doubt, this is not an easy task. Taking something so subjective and putting it into practice takes time and skill. But is this where the future of professional investing advice is headed? Likely so. Typically, investing through large legacy firms focuses on buying a 70/30 equity and bond portfolio. Providing access to those investments that might require the scale of the large firm to facilitate. But in today's landscape, technology has enabled many firms of various sizes to have access to the standard options of advice 2.0, aka the financial planner era. Today, advice 3.0 encompasses the values of its clients. How does the advisor to the family office or the advisor for the financial family of today incorporate their value system into their investing process? Impact investing and the responsible investing framework act as a lens into the not-so-different future, where financial advice meetings are conducted with not only a risk-reward lens but a strict focus on the value of the investor and the lasting legacy they want to leave. In fact, in a shameless plug, these are the conversations we are having today.

There is certainly more great content on this around the internet. I recommend you explore what you find and ask yourself, what kind of legacy do you want to leave, and are you investing intentionally? And if anything, here resonates with you, reach out. We’d love to chat.

By James Marchetti, Partner, Sayers Wealth