Long-term returns
Claims that you have to surrender returns in impact investing are flawed; in fact we see evidence to the contrary. Rather than hinder, companies making a positive impact should be good for investor returns.
Whether you look at revenues or profits, companies held by some positive impact portfolios are growing significantly faster than the FTSE 100 companies.
Over the past five years, companies in our adventurous portfolio have, on average, grown their revenues by 60.4 per cent (annualised at 9.9 per cent a year).
Meanwhile revenues for companies in the FTSE 100 Index have, on average, only increased by 10.3 per cent (annualised at 2.0 per cent a year). Moreover, research and development spend by companies within the portfolios has led to employment-led growth.
New opportunities
Growing demand has led to a flurry of new fund launches since the start of the year. One such funds is the Hermes Impact Opportunities Strategy launched in February and managed by Tim Crockford. It has a target of 500bps on a rolling five-year basis and is indexed against the MSCI World Index.
There is also an exciting new investment trust due to launch this month. The Global Sustainability Investment Trust is targeting high-impact opportunities within less liquid asset classes such as private equity or micro-finance. Having been involved in the design of this vehicle over the past year, it is exciting to see new launches like this come to market. The trust will invest across a range of areas that are able to deliver the SDGs.
Next steps
It is clear that there is strong investor demand for impact investing. Looking ahead, as impact reporting continues to improve, it raises the prospect of a broader group of investors being brought in to the sector, attracted by greater clarity on how better social and environmental outcomes for society are fulfilled by their investment actions.
Damien Lardoux is portfolio manager at EQ Investors
Q&A
What is impact investing?
Impact investing is an exciting and rapidly growing industry powered by investors who are determined to generate a social and environmental impact as well as financial returns.
How does it differ from ESG investing?
An ESG framework is a valuable tool that can be used to evaluate how certain behaviours negatively affect a company’s performance, and subsequently drive investing decisions. Most fund managers have now integrated ESG into their mainstream investment process.
Impact Investing takes an active approach to generating positive impact by investing in companies whose products and services integrate positive impact creation rather than just negative impact avoidance. Impact investing also adds another element: the ability to measure the positive effect of the investment.
