The words ‘Impact Investing’ and the rhetoric around achieving positive impact via investments has been steadily increasing for some time.
Here we provide evidence that challenges the common misconceptions still persisting including:
- the lack of sector growth
- financial concessions for impact gains
- a lack of available funds
- ‘impact washing’ and
- the lack of language that advisers can use.
- MYTH #1: Impact investing is a niche area not destined for growth
As Owen Walker, Asset Management Correspondent from the Financial Times, comments on the Annual Impact Investor Survey 2018 by GIIN, “To get an idea of how quickly the industry is growing, GIIN tracks the assets managed by the same respondents each year. For the group that provided data in 2013 and did so again [in 2018], the average annual growth in assets was 13 per cent. The industry is also attracting a steady stream of new entrants. More than half of the organisations in GIIN’s survey made their first impact investment in the past decade.”
Closer to home comes a report by the UK National Advisory Board on Impact Investing entitled “The Rise of Impact” which outlines that there is currently at least £150bn of committed UK capital in impact investments in the UK. The report also mentions that “while the UK has historically led the world in this field, we are now seeing an explosion of interest around the world – and others are catching up fast.”
Still unsure? See this CityAM article on why impact investing is a trend that’s here to stay.
But is impact investing all it’s cracked up to be? On to Myth #2…
- MYTH #2: You can’t “do well, while doing good”
On the contrary, positive impact can be achieved alongside positive returns and there’s a strong business case that emerges when you look at the evidence.
A study by Oxford University and Arabesque Partners investigated over 200 of the highest quality academic studies and sources on sustainability to assess the economic evidence on both sides.
Here are the highlights:
- “88% of reviewed sources find that companies with robust sustainability practices demonstrate better operational performance, which ultimately translates into cashflows.”
- “80% of the reviewed studies demonstrate that prudent sustainability practices have a positive influence on investment performance.”
So along with finding out that “companies with strong sustainability scores show better operational performance and are less risky”, the study goes on to say that “[b]ased on the economic impact, it is in the best interest of investors and corporate managers to incorporate sustainability considerations into their decision-making processes.”
Those from the London Business School agree. Associate Professor Ioannis Ioannou writes “Today, most scholars agree that the evidence shows a clear positive causal link between responsibility and financial performance, in both the short- and long-term.”
But how do we take advantage of this win-win scenario? On to myth #3…
- MYTH #3: There aren’t a lot of ‘impactful’ retail investment opportunities
Following a report commissioned by the UK Government Inclusive Economy Unit back in 2017 to undertake the first mapping of the UK retail impact investing universe, it was found that at the end of March 2017 there were 194 funds available to retail UK investors. As of Dec 2018, there are now 234 funds, an increase of approx. a fifth in just under 2 years.
If you were to look at sustainable investing funds, EY reported the number of funds increased from 200 in 2004 to 925 in 2014.
You may have also missed last year that 18 industry leaders were signatories on a letter outlining their commitment to increasing social impact investment including big names Allianz Global Investors, Aberdeen Standard Investments, Barclays, Columbia Threadneedle, Hermes Investment Management and Legal & General.
The opportunities are also coming through from these big names – in the last 12 months, Legal and General, Standard Life, Hermes and M&G have all launched impact investment funds.
These funds and their independent, third-party rating can be found here.
Worried the asset managers are just paying lip service? On to myth #4…
- MYTH #4: ‘ESG’ and ‘SRI’ will just be repackaged as ‘Impact’
For some funds this may be true, but it looks like it’s going to become ever trickier for fund managers to employ the method of “impact washing”.
For those responding to GIIN’s Annual Impact Investor Survey it’s an issue investors around the world are keenly aware of and wanting to stop with possible solutions being cited as greater transparency, third-party certification, agreement to shared principles or a code of conduct.
And when it comes to third-party certification, about half of the 234 impact funds mentioned previously receive 3 out of 5 stars when given an independent, third-party composite rating taking into account social impact, ESG, transparency, controversial stock holdings and financial confidence.
We may have some way to go to dot the ‘i’s and cross the ‘t’s but we’re on the right path to holding those to account for ensuring delivery of meaningful impact investing opportunities.
But how do advisers take the first step? On to myth #5…
- MYTH #5: There’s no easy way to talk to clients about impact investing
When it comes to your clients, speaking the same language is critical. Luckily, for advisers the Sustainable Developments Goals (SDGs) can be an appropriate and topical place to start. Offering a globally accepted roadmap of impact goals, the SDGs provide advisers with a way to evidence value and relevance by bringing current thinking to today’s challenges.
A PwC research report found that SDG awareness amongst the business community is high at 92% and “Expectation is high that business will make a significant contribution to help governments, and society for that matter, achieve the goals.” The report goes on to highlight that “Smart companies wanting to position themselves as supporters may want [to] plan now how they can take sustainability and put it at the heart of business growth to stay ahead of their competition.” This aligns with the 78% of citizens surveyed who say they are more likely to buy the goods and services of companies that had signed up to the SDGs.
As many participants in the investment world across the value chain are now using the SDGs as their frame of reference for impact measurement they can easily transfer across to investor-adviser conversations.
This means that previous dialogue around “Are there any areas of social/environmental good which are of interest to you or with which you particularly identify?” can now be expanded to include a list of 17 SDGs that may help you to better focus a client’s potential investment interest.
The conversation can become “Which of these goal(s) sits closest to your values?”, “Which of the goal(s) would you feel most passionate about investing in?” or “”Which goal(s) do you most want to have a positive impact on?” The SDGs help offer a starting place from which to build.
We’ll be tackling more myths about impact investing in future newsletters and delving into some specific elements mentioned here in more depth, however, if you’re keen to find out more now about how you and your company could better seize your market share when it comes to impact investment, please don’t hesitate to get in touch here.
 https://thegiin.org/assets/2018_GIIN_Annual_Impact_Investor_Survey_webfile.pdf [accessed 18th February 2019]
 https://arabesque.com/research/From_the_stockholder_to_the_stakeholder_web.pdf [accessed 18th February 2019]
 https://www.london.edu/faculty-and-research/lbsr/why-it-pays-to-be-socially-responsible-in-business [accessed 18th February 2019]
 https://www.morganstanley.com/ideas/sustainable-investing-performance-potential [accessed 20th February 2019]
 https://www.morganstanley.com/assets/pdfs/sustainableinvesting/sustainable-reality.pdf [accessed 20th February 2019]
 Mapping the UK Impact Investment Retail Market – https://www.gov.uk/government/publications/advisory-group-on-creating-a-culture-of-social-impact-investment [accessed 19th February 2019]
 https://www.ey.com/Publication/vwLUAssets/EY-sustainable-investing-how-the-millennial-generation-invests-its-wealth/$File/EY-sustainable-investing-how-the-millennial-generation-invests-its-wealth.pdf [accessed 20th February 2019]
 https://www.pwc.com/gx/en/sustainability/SDG/SDG%20Research_FINAL.pdf [accessed 18th February 2019]Tags: financial adviser, impact investing, investors, social impact investment, sustainable development goals, worthstone