Money Matters:
The world is changing – and so is the nature of people’s investment decisions.
Investments with a positive social impact
In recent years, thanks to unprecedented weather conditions, a string of environmental catastrophes and, more recently, young activists publicly holding world leaders to account, the condition of the planet is now centre stage. The impact of climate change is abundantly clear, and this has got many people thinking about how they interact with the world in general. How can we continue to lead our lives without contributing to the bad things that are happening, and instead help to improve the situation for everyone?
This changed approach extends to how we’re using our money. There is a growing investor movement that aims to balance financial returns with ethical, social and environmental impacts. It’s now possible to focus on deliberate investments that avoid disadvantaging people and the environment, for instance, or to invest in areas that generate a positive social outcome – good returns with a clean conscience, so to speak.
While funds of this kind aren’t new in the UK, the US, Australia or Europe, they’re almost unknown in Singapore and Asia. We asked Associate Director at Chartwell, CHRIS POTTER, a specialist in ethical investing, to describe three of these investment alternatives.
#1 Ethical investing
Ethical funds have been around for a considerable time, and have returned a commendable performance. This type of investing relies on an investor’s individual outlook. Some may choose to eliminate certain industries such as gambling or alcohol from their portfolios. Others may opt to allocate more to industries that meet the individual’s views and ethical principles – environmental, religious or political.
#2 Socially responsible investing
Socially responsible investments can take into account several factors, including the nature of the company being considered and how it conducts its business. As with ethical investors, socially responsible investors typically avoid industries such as gambling, alcohol, tobacco or firearms. They may seek out companies engaged in environmental sustainability, alternative energy and clean technology efforts. Companies that treat their employees and suppliers fairly or source supplies in an environmentally sustainable manner could also qualify as socially responsible investments.
The growing popularity of this sector has seen an increase in the funds and pooled investment products available for investors. For example, mutual funds and unit trusts provide an added advantage in that investors can gain exposure to multiple companies across numerous sectors with a single investment.
Bear in mind that just because an investment touts itself as socially responsible doesn’t mean that it will provide investors with a good return.
#3 Impact investing
These are investments into companies, organisations and funds, made with the intention to generate measurable social and environmental impact alongside a financial return. Impact investments can be made in both emerging and developed markets, and generally involve providing capital to support solutions to global challenges in sectors such as sustainable agriculture, affordable and accessible healthcare and clean technology.
Impact investors actively seek to place capital in businesses and funds that can harness the positive power of enterprise. Those who operate in the impact investing industry share a conviction that creative investments can play a crucial part in addressing social and environmental challenges. This investment area is sparking the emergence of a new industry that operates in the largely uncharted area between philanthropy and a singular focus on profit-maximisation.