Market Decode: Is impact investing right for you?

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Discover how you can combine a desire to have a positive impact in the world with investing for your future.

Market Decode: Is impact investing right for you?
The idea of impact investing has been around for several decades, but it used to mainly involve "negative screening," or avoiding investments in companies and industries whose products or practices you didn't agree with. It has changed a lot since then: today, impact investing can be thought of as investing in companies, organizations and funds with the intention of generating social and environmental impact as well as financial returns.
As of 2018, more than 1,700 investment funds — including mutual funds and exchange-traded funds — had incorporated ESG (environmental, social and governance) factors into their investment process, up from just 55 funds in 1995Footnote 1. And more and more companies are responding to growing investor interest. As the graphic below shows, in 2011, only 20% of companies in the S&P 500 published annual reports on their ESG performance and practices. In 2018, that number had jumped to 86%Footnote 2.
Bar chart graphic showing growth of ESG reporting by S&P 500 companies between the years 2011 and 2018. For 2011, it shows that 80% of companies were non-reporters and 20% were reporters, for 2012 it shows that 47% were non-reporters and 53% were reporters, for 2013 it shows that 28% were non-reporters and 72% were reporters, for 2014 it shows that 25% were non-reporters and 75% were reporters, for 2015 it shows that 19% were non-reporters and 81% were reporters, for 2016 it shows that 18% were non-reporters and 82% were reporters, for 2017 it shows that 15% were non-reporters and 85% were reporters, and for 2018 it shows that 14% were non-reporters and 86% were reporters. The source is the Governance and Accountability Institute, Inc., 2018
What's more, recent research suggests that investors don't have to sacrifice long-term growth when investing for impactFootnote 3. "There is growing data showing that impact investing may potentially produce long-term returns that are as good as, or even better than, traditional investing," says Jackie VanderBrug, head of Sustainable and Impact Investment Strategy, Merrill and Bank of America Private Bank, in the above video.
"It just makes sense," she adds. "Companies that are driving efficiency in water, waste and energy can help lower their costs, and better workplace policies may lead to more employee engagement and stronger revenues over the long-term."
Suggested for you
  • For more insights, explore our impact investing page
  • If you're investing on your own, use our mutual fund screener to find mutual funds managed based on the social responsibility of the underlying investments:
    1. In the mutual fund screener (log in required), open the "Pre-Defined Screens" list on the left
    2. Select the "Socially Responsible Funds" pre-defined screen
    3. Select "View"
    4. When the list is displayed, sort funds by criteria e.g. ratings, performance, expenses or risk
  • If you prefer to have help with your investing, talk to a Merrill Financial Solutions Advisor on how to get started

Footnote 1 U.S. SIF Foundation, 2018

Footnote 2 Governance & Accountability Institute, Inc., 2018

Footnote 3 "Impact Investing: The Performance Realities." Bank of America — Chief Investment Office, June 2018.

Impact investing and/or Environmental, Social and Governance (ESG) managers may take into consideration factors beyond traditional financial information to select securities, which could result in relative investment performance deviating from other strategies or broad market benchmarks, depending on whether such sectors or investments are in or out of favor in the market. Further, ESG strategies may rely on certain values based criteria to eliminate exposures found in similar strategies or broad market benchmarks, which could also result in relative investment performance deviating.

S&P 500 Index includes a representative sample of 500 leading companies in leading industries of the U.S. economy. Although the index focuses on the large-cap segment of the market, with approximately 75% coverage of U.S. equities, it is also an ideal proxy for the total market.

This material was prepared by the Chief Investment Office (CIO) and is not a publication of BofA Merrill Lynch Global Research. The views expressed are those of the CIO only and are subject to change. This information should not be construed as investment advice. It is presented for information purposes only and is not intended to be either a specific offer by any Merrill Lynch or Bank of America Private Bank entity to sell or provide, or a specific invitation for a consumer to apply for, any particular retail financial product or service that may be available.

Global Wealth & Investment Management (GWIM) is a division of Bank of America Corporation. Merrill Lynch Wealth Management, Merrill Edge®, Bank of America Private Bank, and Bank of America Merrill Lynch are affiliated sub-divisions within GWIM. The Chief Investment Office, which provides investment strategies, due diligence, portfolio construction guidance and wealth management solutions for GWIM clients, is part of the Investment Solutions Group (ISG) of GWIM.

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