Morgan Stanley
  • Institute for Sustainable Investing
  • May 7, 2018

Finance and the Butterfly Effect

The cause and effect of Investing with Impact.

According to the Butterfly Effect principle, a butterfly flapping its wings in New Mexico has the power to cause a hurricane in China. It may take a very long time, but there is a real connection between the two events. There would not have been a hurricane if the butterfly had not flapped its wings at just the right point in space and time. The theory, essentially, is that small changes in the initial conditions lead to drastic changes in the results.

A version of the Butterfly Effect can also be applied to our investment decisions. This is because every time individuals or institutions send a dollar out into the world - through investing or philanthropic activities - it creates impact.

The impact could be good, bad or indifferent and it exists whether anyone knows about it, measures it, or even cares about it – much like the butterfly and its hurricane.

But more people are beginning to care about the impact of their financial decisions, which has led to the development of Investing with Impact.


For too long, many investors, wealth management clients in particular, have been unaware of their considerable power and its ability to have a tangible, positive impact on the world.

Once investors become aware of that power, a new sense of responsibility can lead to questions about their financial choices, such as: ‘What kind of impact am I currently having?’ or ‘What impact do I want to create?’ The change of mindset often infuses the act of investing with a new energy and sense of purpose. This energy is a pre-cursor to the true integration of an investor’s financial and personal impact goals.


The idea of Investing with Impact is comprised of two parts: Financial goals and impact goals. Financial goals focus on financial performance driven by economic fundamentals.

Impact goals focus on positive social and/or environmental outcomes driven by specific values and an overall mission.

Investing is no longer just transactional – it is personally and institutionally transformational.

When an investor decides to explore the option of investing in a way that aligns with their personal values and goals, it involves redefining the meaning of investment success and long-term value within their portfolio.

These new definitions are anchored to their selected environmental and/or social impacts.


There is no single motivation for opting to Invest with Impact, with impact goals determined by the unique requirements of each investor.

For example, Millennials tend to pursue investments that generate positive environmental and social impacts, as well as financial returns, while Public and Private Foundations and Not-for-Profits may seek out Investing with Impact options in order to align their investments with their mission statements.


For more information on Investing with Impact please contact your Morgan Stanley Financial Adviser.