Heart­en­ing proof that you CAN get rich by do­ing good

... with ‘im­pact’ in­vest­ing to help the world (and hor­rify Scrooge)

The Scottish Mail on Sunday - - Wealth - By Sally Hamil­ton

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

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