Financial jargon, especially in impact investing, can be hard to keep track of at the best of times – and just when you think you’ve gotten a handle on the latest money mutterings, they change all over again.
But whether it’s termed green, ethical, ESG (Environmental, Social and Governance) or sustainable investing, the aim is generally the same: it’s making money while making the world a better place, and it’s clear this is a fast- growing market.
UK investors ploughed more than £2.7 billion into what the Investment Association terms ‘responsible investment’ funds between January and November 2019, the highest equivalent inflow ever recorded. Close to £26 billion is now invested in these funds, up from £12 billion in November 2016.
Historically, ethical investing focused on excluding specific companies and sectors – like tobacco or arms. Today though, most strategies have evolved to include companies that have top ESG scores in a particular sector. Impact investing goes a step further by investing in companies whose products and services generate social and environmental impact.
Impact investing and diversification
At EQ Investors, we combine a number of these different approaches in our Positive Impact Portfolios, through which we invest in a range of different funds from all over the green investment universe.
Suitable for ISAs and personal pensions, the underlying investments in each fund inside the Positive Impact Portfolios are mapped against the UN SDGs, focusing on the core products and services that each company provides.
But no investment is included based on its environmental or social credentials alone – it must also aim to deliver an attractive return for investors. It is this combination of solving social and environmental challenges and the prospect of positive returns that appeals to investors.
Many studies from heavy-hitting financial institutions including Morgan Stanley have shown that green investment can boost returns while reducing risk. This makes sense when you consider the approach favours companies that are actively trying to do good and run their businesses in a sustainable way.
Such companies avoid fines and other penalties and have stronger relationships with their customers, suppliers and employees. Moreover, they tend to operate in new sectors with high- growth potential. In short, these are the green companies of the future, and those we want to be invested in.