Heartening proof that you CAN get rich by doing good
... with ‘impact’ investing to help the world (and horrify Scrooge)
SCROOGE might choose to build wealth for wealth’s sake. But more socially-minded individuals are putting their money where their morals are.
At its simplest this means being an ethical investor, where ‘sinful’ money generators such as tobacco or firearms manufacturers are not welcome in a portfolio of shares or funds. But screening out too many such offenders often means foregoing investment returns.
There is a more positive way to profit from your principles by backing companies seeking to solve the world’s key social and environmental issues. It is now commonly known as ‘impact’ investing.
With this approach, investors – private equity companies or fund managers – exert their influence on businesses to do good while trying to make money in the process.
The impact investing world includes everything from multibillion pound global equity funds to small-scale community energy projects.
James Gifford is head of impact investing at investment bank UBS. He says most impact investing happens through private equity where money is invested directly in a business. He says: ‘For example, it might be an investment in a startup bringing mobile banking to Indonesia. This would help alleviate poverty as well as be good for the tech company involved.’
It is now becoming easier for individual investors to get involved. A new investment trust, The Global Sustainability Trust from asset manager Aberdeen Standard, will list on the stock market later this month.
Rebecca Jones, editor at website Good with Money, says: ‘The trust is an exciting development bringing small-scale, private company impact investing to retail investors.’
Andrew Dykes, the trust’s deputy chairman, says: ‘The aim is to generate a measurable environmental and social impact – alongside a financial return for our shareholders.’
Gifford says private investors can have little influence in changing corporate behaviour. But big shareholders, such as pension and investment funds, have greater powers of persuasion.
For example, a fund manager might be able to coax a company to get a key supplier to pay workers, often overseas, a better wage. He adds: ‘By helping improve the business behaviour of this supplier, the company should then be able to attract the best graduates which will have a positive impact on their own corporate performance. In effect, everyone wins.’
Businesses doing good are not always the ones you might immediately think of.
For example, oil company Shell has its core business in fossil fuels, but it is also one of the globe’s biggest investors in renewable energy – making an active contribution to a cleaner environment. Something not all its competitors do.
Damian Payatakis is an expert in impact investing at Barclays Bank. He says that climate change, a rapidly ageing population and chronic disease, are all areas where companies can have a positive effect.
He points to Xylem, a firm that advises organisations on how to reduce their water consumption, helping save the environment as well as cut business costs.
Peter Michaelis, head of sustainable investment at fund group Liontrust, says the investment strategy can reap rewards for investors. Its ten sustainable funds have outperformed average mainstream funds in their respective sectors over the past five years.
A success story among its many underlying investments is building materials company Kingspan. Michaelis says: ‘Every new building now in the UK has to be thermally efficient due to tighter regulations. There will be increasing demand for this firm’s products. The same can be said of US cyber security firm Palo Alto Networks as businesses large and small want to keep their data safe.’
Darius McDermott, of fund broker Chelsea Financial Services, says impact investing fund managers have challenges. He says: ‘There are no formal requirements for companies to release data on sustainable issues in a consistent format. As a result, many asset managers are developing their own tools to measure impact.’
Despite the national trend towards being more socially and environmentally aware (caring more about what we eat and where our clothes are made) ethical-style investments represent little more than 1 per cent of total assets under management in the UK.
Mark Dampier, of investment platform Hargreaves Lansdown, says impact investing has some way to go before it enters the mainstream. He says: ‘It is a small and immature market where available investments for investors are few and far between.
‘Aside from a few bond funds, such as Threadneedle Social Bond, investors are hard pressed to find appropriate funds they can slot into their portfolios.’
Others are more upbeat. Rebecca Jones, at Good with Money, says: ‘There has never been more opportunity for investors to make a real impact with their money.’ She likes renewable energy funds Foresight Solar and Greencoat Wind. Another option is the Triple Point Social Housing Real Estate Investment Trust. This invests in building social housing for those with longterm learning disabilities.
Additional options include the Liontrust Sustainable Future range. Ethical bank Triodos has two socially responsible investment funds – Sustainable Equity and Sustainable Pioneer. The former invests in Japan National Railways which builds high-speed trains that compete on price and speed with more environmentally unfriendly planes.
Other funds include M&G Positive Impact, Edentree UK Amity and Rathbone Ethical Bond.
Barclays Multi-Impact Growth, launched less than a year ago, invests in other funds that meet its manager’s environmental and social impact criteria. The bank’s Smart Investor platform also highlights funds suitable for impact investors.
The aim is to generate a return... and a social impact Ethical assets make up just 1 per cent of the total
HUMBUG?: Impact investments aim to make money – and help solve the world’s key issues