THE BRIEFING Wealth management


Impact investing has been steadily gathering momentum. It may soon go stratospheric, writes Anna Solomon

Investing evolves every so often. Once upon a time, returns – the money you get back when making an investment – were the only thing that really mattered. The 1950s saw the popularisation of risk-adjusted returns, which allow investors to select portfolios according to their appetite for risk (which is mirrored, in theory, by the size of potential returns). Then, in 2014, G8 Social Investment Taskforce chairman Sir Ronald Cohen declared that the world of investing had started to move towards ‘risk, return and impact.’ In other words, along with the question of how much money investors stand to make and the risk they take on in order to make it, people had begun to ask: ‘What impact do my investments have?’ The roots of this trend can be traced back

to the early 2000s. ‘We had something called ethical investing, which meant excluding certain things from your portfolio: arms, tobacco, gambling,’ says Jamie Broderick, director of the Impact Investing Institute. This metamorphosed into ESG, the practice of investing only in businesses or initiatives that have good internal environmental, social and governance structures. Fast-forward to 2021. ‘It’s migrated to something where the investments are even more proactively intentional, trying to target businesses that are delivering something that’s positive for society or the environment,’ says Broderick. It’s not just about excluding the bad, but

actively seeking out the good. Impact investing came about around a decade ago, and refers to investments in companies, organisations or funds that have the express purpose of having a beneficial impact on the world. One early example ran between 2010 and 2015 when RAND Europe was commissioned by the Ministry of Justice to stage the ‘One Service’ at Peterborough Prison. The idea was that private investors would fund interventions to reduce reoffending, such as introducing case workers to assess offenders’ needs and implement resettlement activities. If the interventions were successful, the Ministry of Justice saved money, and these savings were

paid back to private investors. The scheme allowed investors to ‘do well’ while ‘doing good’. Today, impact investing is understood to be aligned with the United Nations Sustainable Development Goals, a collection of 17 global goals set in 2015, designed to be a ‘blueprint to achieve a better and more sustainable future for all’ and intended to be achieved by 2030. ESG still plays a part, however. ‘You’re still thinking about the internal operating practices of a company,’ says Damian Payiatakis, head of impact investing at Barclays. ‘There’s no point investing in a solar panel manufacturer who pollutes the environment, uses slave labour and doesn’t pay their taxes.’ In the last decade, impact investing firms

have sprung up all over the globe. Tribe Impact Capital, the first dedicated impact wealth manager in the UK, is one of them (see panel,

The big prize is not

philanthropic capital – it’s mainstream markets

right). Chief impact officer Amy Clarke says that rather than omitting ‘externalities like climate change, food insecurity, or lack of access to education, housing or healthcare’ from the decision-making process, Tribe includes them ‘because these are the very things that define whether economies become successful’. Across the pond, Tony Davis, a Goldman

Sachs alumnus and former president of Anchorage Capital Group, is ‘incorporating sustainability throughout the investment process’ with Inherent Group. Davis’s New York-based business invests in companies which supply products and services that address one or more of the UN SDGs, and has been particularly active in health, education,

decarbonisation and infrastructure. Inherent, like RAND Europe, has been involved in ‘Pay for Success’ programmes, including one that prevented prisoner recidivism by helping them to keep their court date. Elsewhere, impact investors Big Society

Capital, Mustard Seed, and Big Issue Invest are making waves, while C Hoare and Co, along with its own Golden Bottle Trust, has become a founding investor in Snowball, an investment vehicle ‘rethinking growth’. Large international firms such as Barclays have also incorporated impact into their mission; it is Payiatakis’s job to ‘help clients navigate the space’ and work with investment teams to ‘bring impact’. Organisations such as the Impact Investing Institute are using awareness, research and advocacy to encourage the practice. The movement is having an effect. Big

Society Capital CEO Stephen Muers says his organisation estimates there is £5 billion of impact investment in the UK – a sixfold increase over eight years. He adds that the figure includes only ‘deeper’ impact investments, ‘so is probably smaller than the total market’. The size of global impact investments increased by around 40 per cent between 2019 and 2020, and is now estimated at $715 billion, according to the Global Impact Investing Network (GIIN). Globally, the total size of ESG-dedicated assets is roughly $40 trillion. Although the practice is expanding, it

faces challenges. ‘There are different metrics, different data sets, and people interpret things differently,’ says Payiatakis. ‘Do you measure how much carbon is in the portfolio? How many trees have been saved? It depends what you count.’ There is also a prevailing assumption that

investing with the express purpose of doing good is likely to reduce returns. However, says Broderick, just as ESG was able to move past this objection, impact investing may be able to do the same. The opportunities in impact, he says, are enough that ‘we can put to bed the notion that you have to make sacrifices to invest sustainably’.

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