ESG Investing

Institutional vs. Individual Impact Investing


Investors fall into two categories: institutions and individuals, also known as institutional investors and retail investors respectively. Both provide capital to business ventures with the purpose of earning a financial return. Both may also choose to participate in impact investing, or financing projects to achieve social or environmental good on top of monetary gain. Where the two types tend to differ is in their approaches to impact investments and the influence they exert over companies and markets.

What Are Institutional Investors?

Institutional investors are organizations such as foundations, endowments, faith-based groups, pension funds, mutual funds, and asset managers. They invest to grow their wealth, earn a profit for clients, or advance organizational objectives.

Institutional investors may pursue impact investing to help align their finances with their mission or because they believe they are uniquely capable of bringing funds to underserved markets. For example, the MacArthur Foundation has made more than 250 catalytic capital investments in accordance with its environmental, social, and governance (ESG) objectives. Others, such as Hiromichi Mizuno, chief investment officer of Japan’s Government Pension Investment Fund, and Larry Fink, chairman and CEO of BlackRock, have cited the portfolio risks of failing to consider ESG factors among their motivations for seeking more sustainable investments.

Institutional investors tend to have a greater ability to influence companies than retail investors. This is because institutional investors can leverage their influence through proxy voting as they own the bulk of sustainable investing assets and have the resources to study and develop shareholder resolutions. They can also share their views with companies through informal shareholder dialogue,which is rarely feasible for retail investors.

Individuals participate in socially responsible investing to earn a financial return while also furthering their personal values.

What Are Individual Investors?

Individual or retail investors are people who invest their own money, usually by buying securities through brokerages. They generally are not financial professionals, and they typically cannot access personalized analyses of markets or investment opportunities. They tend to invest smaller amounts than institutions do. According to the 2018 Global Sustainable Investment Review, only 25% of sustainable investments were held by retail investors.

Individuals may participate in socially responsible investing to earn a financial return while also furthering their personal values. Unlike institutions, individuals do not need to form an institutional consensus and earn the approval of a board before selecting an investing strategy. However, that freedom is tempered by other limitations that limit the impact investment options available, including liquidity constraints and risk and return objectives.

Still, options for individual investors are growing. In 2018, Morningstar identified 351 sustainable funds available to US investors, an increase of almost 50% over the previous year. With new platforms aimed at the retail market such as Vestive, Good Money, OpenInvest, and Swell growing in number, individual investors have increasing opportunities to make use of impact investment products.

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