Impact Investing: Making Money While Making A Difference


Impact Investing: Making Money While Making A Difference

A growing number of investors are turning to impact investing, which aims to deliver social and environmental benefits as well as financial gains.

Published on 14 August 2017

Ask people if they like nature, support animal rights, are against war and, want to stop pollution and, not surprisingly; most will say yes. These platitudes are well and good, but putting these ideas into action is another thing.

So, in the investment world, if all things are equal, would you choose to invest in a company that advocated all of the above over a company that had a poor track record in adopting such company practices and policies?

Impact (also called “ethical,” “green,” “socially responsible,” or “sustainable”) investments are those that are made into companies, organizations, and funds with the intention of generating a positive social and environmental impact as well as a financial return.

Impact investments can be made in emerging or developed markets, and across a variety of sectors including microfinance, agriculture, energy, housing, healthcare, and education.

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Impact investment vehicles are growing rapidly in popularity, and have seen a surge of interest and an influx of assets over the last ten years.

A recent report titled “US Sustainable, Responsible and Impact Investing Trends” revealed that sustainable, responsible, and impact investing assets under management (AUM) in the US rose 33% between 2014 and 2016 and now stand at US$8.72 trillion.

Research suggests that millennials in particular are attracted to investments that make a positive social or environmental impact: 86% of millennial respondents to a 2017 Morgan Stanley survey said that they are “very interested” in impact investing, and a World Economic Forum survey of 5,000 millennials from 18 different countries showed that they think the top priority for any business should be “to improve society.”

So if making a profit while making a difference is important to you as an investor, impact investments should be something you should seriously consider.

changing with the times

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As society’s values change, so do those of the financial world. Some companies voluntarily adopt change before they are compelled to do so by their stakeholders or society at large. Historically, making a profit for businesses was paramount while worker rights and environmental impacts were given a low priority if considered at all.

Stories of horrific mine accidents, child labour, sweatshops, food production facilities, and environmental disasters have changed the way many people think. Now consumers are aware of ethical products, fair trade, energy-ratings, and the like and are becoming increasingly conscious of these factors when they make their purchasing decisions.

Many consumers now realise that they can make an impact through their buying habits and, similarly, an increasing number of investors are looking to invest their money in companies that seek to remedy – rather than perpetuate – societal and environmental ills.

“As widespread attention to sustainability continues to increase, consumers and investors alike are now more than ever factoring sustainability issues into their investment decisions,” Audrey Choi, chief sustainability officer and chief marketing officer at Morgan Stanley, commented.

getting onboard

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Investors can join the impact investment “movement” by directly buying shares of companies that meet their ethical expectations, investing in funds, trusts, bonds, or exchange-traded funds (ETFs) specifically set up for impact investment, or reinvesting the proceeds of their pension funds in companies or funds that match their own personal beliefs and investment principles.

While many funds may proclaim they invest responsibly in line with the United Nations Principles of Responsible Investments, there are specific funds that believe in strictly investing in companies involved in activities such as medical solutions, responsible banking, recycling, health care, energy efficiency, aged care, education, innovative technology, sustainable products, microfinance, and clean energy. They avoid the likes of fossil fuels, tobacco, and gambling stocks, and usually state their stance quite clearly in their prospectus, company profile, and annual report.

While some impact funds opt for below market returns due to their strategic objectives, the majority of impact investments are able to deliver returns in line with market averages and, in many cases, exceed the expectations of investors.

So impact investment is not just about getting a warm feeling, but also about achieving a handsome return on investment. If you want to make a positive impact on not only your portfolio, but also on greater society, you should consider impact investments.

impact investing opportunities

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There are an increasing number of impact investment opportunities – either directly or through organisations or trust funds that invest in various companies that match the fund’s economic, social, or environmental investment criteria. These funds invest in a variety of industries such as alternate energy, biotechnology, education and innovative solutions. The added good news is that many show higher profitability and lower volatility than conventional investments.

Here are a few examples of the many impact investment opportunities out there for you to consider:

  • Many of the major global financial firms – including UBS, Credit Suisse, JP Morgan Chase, Morgan Stanley, and Goldman Sachs – have launched their own impact investing initiatives and offer investment products that promote positive social and environmental solutions.
  • FMO is a Dutch entrepreneurial development bank that assesses impact, sustainability, and long-term viability in the projects it funds. Success is measured by the long-term impact to local economies.
  • Infigen Energy is a specialist renewable energy company with solar and wind farms in Australia.
  • Vestas is a Danish company and the world’s largest manufacturer of wind turbines with operations in 73 countries.
  • Stewart Investors Asia Pacific Sustainability Fund invests in companies that have adopted sustainable business practices in countries such as India, Taiwan, the Philippines, and Australia. Since its inception in 2005, the fund has yielded a 406.4% return, proving that sustainability can also be good for the wallet. The catch: there is a minimum investment of £500,000 (US$648,950).
  • MSCI KLD 400 Social ETF is a fund that shows returns that significantly exceed the S&P 500 and will appeal to investors seeking social conscious and reasonable marketplace exposure.
  • Aberdeen Ethical World Equity selects stocks based on a set of ethical (socially responsible) criteria.
  • Blackmores is an Australian company involved in producing vitamins and supplements and operates within a culture based on passion for natural health, integrity, respect, leadership, and social responsibility. It actively considers the environmental, social, and economic activities of the business.