4 min read 24 Jan 22
Summary: It is possible to have an impact on the environment not only through day-to-day actions, but also through making personal investment choices that are focused on achieving a stated impact goal.
Many of us are more mindful than ever about the choices we make and how we impact the environment and society. More and more people are aware of how personal lifestyle changes can make a small difference, whether it’s travelling more via public transport or donating to charities.
That said, the difference that one individual can make is very limited – lifestyle changes are required certainly, but the scale and urgency of the problems the world faces means that bigger efforts are needed. Governments arguably have the primary responsibility to address these challenges. However, given the significant funding required, there is a role for investors to play too in providing capital to deliver change.
It is possible to amplify the impact of your lifestyle choices by making investment choices that are focused on achieving a stated impact goal – these might be environmental, societal, around diversity and inclusion or another of the United Nations Sustainable Development Goals (SDGs). The SDGs are a universally recognised articulation of the most pressing challenges facing people and the planet, from addressing poverty to combatting climate change. For more information visit https://sustainabledevelopment.un.org/.
The idea behind Impact Investing is to support the efforts of governments and multinational institutions by directing money towards companies that are delivering solutions for climate change and the environment, such as renewable energy and recycling businesses, as well as solving societies greatest challenges including access to better healthcare and ending poverty.
Impact investing has the potential to shape a financial future and the future of the planet too. We believe targeting long-term financial returns and caring for planet can go hand in hand. Impact investing is not just about choosing not to give money to companies whose behaviour or activities we don’t like; it is about trying to make a positive change through encouraging innovative solutions to the challenges the world is facing.
An impact investor’s performance is measured against the dual objective of delivering positive societal impact, as well as financial returns. Often, these impacts are measured against the UN SDGs.
Of course, the COVID-19 pandemic has posed a huge threat to many of these developmental challenges, not least when it comes to improving access to healthcare. This health and economic crisis emphasises the need for us to push forward and meet the SDG targets. As time runs out to achieve these goals by 2030, urgent action is needed.
Investing with purpose is another way of achieving the SDG goals. It’s a logical step forward from daily actions such as recycling or switching to an electric car, to putting your savings towards solutions, and supporting companies that are focused on delivering positive change.
The effect of investing for impact is difficult to measure, but there are attempts to do so. For example, research by campaign director, David Hayman, on behalf of ‘Make My Money Matter’ found redirecting your pension wealth could have 21 times the impact on your carbon emissions than going vegetarian or giving up flying. “Making your money matter is the most powerful step you can take to cut your carbon footprint,” according to the campaign’s representatives.
With climate change being one of the biggest challenges the world faces today, there is growing recognition of the need to de-carbonise the global economy. Encouragingly, there have been significant advances in both the scale and the economics of renewable energy over the past few years. This area has been a major focus for impact investors, who have been channelling private capital towards wind power, solar technology and other fossil-free or sustainable solutions.
Investors have been attracted to, for example, the potential for stable, long-term income streams in offshore wind power companies – with the added benefit of knowing their investments contribute to addressing climate change and its impacts. But of course, past performance is not a guide to future performance.
Governments around the world are working to keep global warming to well below 2°C above pre-industrial levels, and striving to limit it further to 1.5°C in line with the Paris Agreement. Investment in clean energy companies is also contributing towards the global effort to reduce carbon emissions and speed up the green transition (the shift from fossil fuels towards cleaner energy sources).
Thereby, investing in companies that are having a direct positive impact in trying to mitigate the effects of climate change, most notably through the production of renewable energy, or by increasing the efficiency of renewable energy being produced, looks to be a step in the right direction.
Many people are keen to reduce the environmental impact of their personal actions. Increasingly, there is a recognition that they can also make a positive impact through their personal financial choices – the two things are complementary.
Impact investing allows you to pursue social and environmental goals, as well as financial gains for your future. It therefore appears that there’s no need for a trade-off between purpose and profit. Impact investing directs capital towards companies that actively seek to provide solutions to the world’s biggest challenges, whilst also aiming to deliver attractive financial returns on your investment over the long term.
The views expressed in this document should not be taken as a recommendation, advice or forecast. We are unable to give financial advice. If you are unsure about the suitability of your investment, speak to your financial adviser.
The value and income from a fund's assets will go down as well as up. This will cause the value of your investment to fall as well as rise and you may get back less than you originally invested.
While we support the UN SDGs, we are not associated with the UN and our funds are not endorsed by them.