Impact Investing — Influencing Organizations with our Investments

What is Impact Investing?

When it comes to investing, ESG, Impact, or Socially Responsible investing balances an interest in financial returns with an interest in societal or environmental returns within a portfolio. Today, roughly 56% of investors in the UK are interested in impact investing according to a survey of 1,800 individuals by the National Advisory Board on Impact Investing, 8 in 10 millennial investors express interest in impact investing, while half participate in it according to Morgan Stanley.

Harnessing Impact

Though far less easy to track and monitor than financial returns, impact related returns are traced in the form of KPIs linked to social and environmental benefits. For areas in which organizations seek to make impacts, look no further than the United Nations Sustainable Development Goals..

Impact Strategies for Investors

Using your investments and purchasing decisions to create a societal impact has generated a new set of questions:

  • How do we hold organizations accountable to their promises?
  • How do we measure the societal impacts of organizations?

1. Divestment

For some, the answer is simple: divest from organizations that don’t make an impact and reinvest in ones that do. This straightforward approach essentially involves extreme avoidance by boycotting companies. Successful divestment, or at least the credible threat of it, can be extremely disruptive. Divestment also assumes you have alternatives worthy of reinvestment within an industry. For these reasons, impact investors are increasingly taking more nuanced approaches towards making an impact.

2. Shareholder Engagement

Rather than solely relying on financial influence, shareholders increasingly band together to persuade the leadership of an organization to change from within. They use their vote to make an organizational impact internally.

3. ESG investing (Environmental, Social and Governance)

  • Negative screening: Excluding bad companies like arms dealers, the pornography industry, irresponsible natural resources companies (such as some miners or water companies) and firms with poor governance or labour practices (like fast fashion firms).
  • Positive screening: Seeking to invest in companies that score positively on indicators such as societal and environmental impact as well as internal governance issues like labour practices, diversity and whistleblowing. FAANGS stocks are an example of stocks often held in ESG portfolios as they are all either carbon neutral, or close to it.

4. Socially responsible investing

Seeking to maixmise profit by investing in for-profit businesses that are socially responsible in their operations and products. Often called double or triple bottom line investing…focusing on profit and purpose/planet/people.

5. Impact investing

Focusing more on impact than financial considerations, but still seeking a profit. Businesses attracting impact investors may in fact be highly profitable, but Impact investors are seeking to maximise impact returns over financial returns

Defining your Impact Investing Strategy

According to Francois Botha in , investors fall on a spectrum of motivations. Between sole interests in either financial returns or impact, you’ll find most ESG investors.

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