Impact Investing: Going Beyond Ethical

Tommy Rogulj, Senior Investment Analyst at AtlasTrend

Given the societal pressures to address environmental challenges, there is a fundamental shift happening whereby corporations are increasingly expected to provide a social benefit as well as profits for shareholders. It has also given rise to the adoption of impact investing – one of the rapidly growing investment strategies to emerge from the ethical investing sector.

What is impacting investing?

While other ethical frameworks focus on the operations of a company, impact investing centres on companies with the ability to measure the social or environmental impact of their products and services alongside their financial return. It considers how companies are helping the world achieve its sustainability goals such as alleviating the impact of global warming and transitioning to renewable energy sources.

Impact investing is a growing trend, there was an estimated US$228 billion in impact investment assets in 2018 – almost double that of the previous year. JPMorgan also reported that impact investments offer the potential for invested capital of US$400 billion to US$1 trillion, and profit of US$183 billion to US$667 billion within ten years.

How to measure impact investments

The UN Sustainable Development Goals (SDGs) are a collection of 17 global goals set by the United Nations General Assembly in 2015 for the year 2030 and the goals cover social, economic and environmental development issues including poverty, education, global warming and social justice. Some see the SDGs as an opportunity to guide companies towards areas of positive, measurable impact.

In 2018, the Global Impact Investing Network (GIIN) surveyed impact investors and found more than half of tracked some or all of their impact performance against the SDGs, showing the potential for impact investing to help achieve the goals.

Not all impact investments are created equal

The problem for investors today is terms such as socially responsible and impact investing mean different things to different people. Investors interested in investing ethically should thoroughly research fund managers and companies to ensure their ethics match with their own. Three things that investors can take into consideration when making a socially responsible investment include:

  • Beliefs what beliefs align with your socially-responsible view of the world, and what matters to you most? It might be divesting from fossil fuel companies or investing in companies which prioritise gender equality in top management.
  • Methodology pay close attention to how the fund manager defines socially responsible investing. The most common approach is a negative screen, which filters out companies that are involved with fossil fuels, tobacco, gambling and other vice sectors. However, some socially responsible funds allow for investment in industries if their activities are immaterial to overall company revenues. Other fund managers will allow some involvement in vice sectors if the company is offsetting it by making a positive impact to society in another way.
  • Reportingin addition to financial reporting, look out for the social impact reporting that many socially responsible funds and companies now provide. If a managed fund or company aims to achieve particularly responsible investment goals, they should report on them on a regular basis.

Examples of Companies Making an Impact

VESTAS WIND SYSTEMS (COPENHAGEN: VWS)                                                                 

SDG Contribution: Goal 7: Affordable and Clean Energy, Goal 11: Sustainable Cities and Communities, Goal 13: Climate Action 

Renewable energy sources such as wind, solar and hydro are set to be the fastest growing forms of electrical generation. Wind generation only accounts for 7% of current capacity but had 20% of newly constructed capacity in 2016. Along with other forms of renewable energy generation, this trend seems likely to continue as traditional fossil fuels are gradually phased out.

Vestas Wind Systems is one of the world’s leading developer and manufacturer of wind turbines that generate electricity. Its services include installation, operation and maintenance works as well as project planning for wind farms globally.                                       

TELADOC HEALTH (NYSE:TDOC)                                                                                                     

SDG Contribution: Goal 3: Good Health and Well-being, Goal 11: Sustainable Cities and Communities

Barriers and inefficiencies in healthcare systems around the world present global challenges including:

  • consumers lacking sufficient access to high quality and cost-effective healthcare
  • employers lacking effective healthcare solutions
  • health systems lacking effective solutions to manage physician supply and demand gaps
  • providers lacking the flexibility to increase productivity by delivering healthcare on their own terms.

The rise and use of consumer technology present significant opportunities for virtual healthcare to address these challenges. Enter Teladoc Health, they are a global leader in comprehensive virtual healthcare systems with a portfolio of services and solutions covering 450 medical sub-specialities from non-urgent, episodic needs like flu to chronic complicated medical conditions such as cancer.

The future of investing?

The future of impact investing looks slated to grow exponentially over the next decade and beyond. The philanthropic way of giving to charities is no longer the only way to make a difference, and impact investing can be a key driver for positive change.

Cover image: KlaraBstock (Shutterstock)

At the time of writing, one or more of AtlasTrend’s managed funds owned shares in Vestas Wind Systems and Teladoc Health.


About Tommy Rogulj
Tommy is a Senior Investment Analyst at AtlasTrend covering international equities in developed markets. He has had over 8 years’ experience in funds management with past analyst roles held at Russell Investments and State Street. He’s also a CFA and CAIA Charterholder.

 

 

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