Impact investing – delivering financial and environmental benefits

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Impact investing challenges the view that social and environmental issues should be addressed by philanthropic activity, and investments should concentrate solely on achieving financial returns1. Instead, it offers investors the chance to use their capital for good, by investing in a range of opportunities to develop social and environmental solutions through investments that also generate financial returns.

Impact investing is growing rapidly. According to the Global Impact Investing Network 2020 Annual Impact Investor Survey, there’s around US $715 bn invested into impact investments1. That’s a lot of people choosing to generate a positive and measurable social and environmental impact as well as financial returns. 

How it’s different to sustainable and ethical investing

In general, sustainable investing assesses the long-term value of a company or asset, based on financial and non-financial factors (across environmental, social or governance (ESG) practices). Whereas ethical investing seeks to avoid investments that have a negative impact on society or the environment2.

Impact investing finds innovative approaches to solving old problems and typically targets causes that aren’t being effectively managed by government, philanthropic and not-for-profit organisations alone2. Available in both emerging and developed markets, the capital is used to provide solutions to some of the world’s most significant environmental and societal challenges, like sustainable agriculture, resource efficiency, healthcare and education. 

Take the next steps

  • BT Investment Solutions (BTIS)
    BTIS delivers an institutional grade investment management capability across a range of solutions, from low-cost index portfolios to actively managed strategies.

Leading the way with impact investing – available on BT Panorama

Nanuk New World Fund
– an actively managed, diversified, global equity fund

Investing in companies that support the world’s efforts to reconcile economic growth with longer term sustainability provides a potentially rich and ongoing source of investment returns for investors.

Areas like advanced and sustainable materials, recycling and pollution control, and healthcare technology typically offer investors strong diversification benefits and the real potential to mitigate otherwise unmanaged risks embedded in traditional equity portfolios. Thomas King, CIO

Nanuk has a holistic and comprehensive approach to sustainable investment, that’s focused on delivering strong risk adjusted returns from a well-diversified and risk controlled portfolio, rather than chasing high ESG or sustainability scores. It combines positive (sustainability related) screening and negative (ESG, ethical and environmental) screening to create ethical, impactful portfolios that are aligned with global sustainability outcomes.

Pengana WHEB Sustainable Impact Fund
– a diversified global portfolio of high-quality listed companies which produce goods and services that address the challenges of sustainability

The team invests in companies producing goods and services that support the transition to a zero carbon and sustainable global economy. Companies are assessed on how they conduct their business (ESG factors) and the impact of its products, alongside deep fundamental analysis and valuations.

These are just some of the associated impacts of investing $100,000 in 2020.

  • Generating enough renewable energy to power an Australian home for a year.
  • Avoiding 16 tons of CO2 emissions, equivalent to two years’ energy use in an Australian house.
  • Avoiding 38,500 litres of water use – that’s 618 showers.
  • Recycling four tons of waste, roughly equal to the annual waste produced by three homes.

Regnan Credit Impact Trust
– an actively managed Australian Fixed Income portfolio of Investment Grade securities

There’s been a significant increase in the number of green and social bonds funding projects which will bring measurable, positive change to people and the planet.

One of the newest issuers is the National Housing Finance Investment Corporation a Federal Government agency providing access to lower cost funding to Community Housing Providers such as Hume, Argyle and Mission Australia.

But a bond isn’t deemed suitable for the fund if it doesn’t also have sound ESG credentials – it will be screened out of the portfolio.

Regnan Global Equity Impact Solutions Fund
– a high conviction, diversified, global multi-cap portfolio

By using the United Nations’ 17 Sustainable Development Goals (SDGs) and 169 underlying targets, the Regnan impact investment team finds mission-driven companies that provide solutions for the growing unmet sustainability needs of society and the environment.

  • We engage with management to keep companies focused on business areas that contribute to solutions. 
  • We help companies focus on the environmental footprint of supply chains and working conditions in their suppliers’ factories to maximise the net positive impact.

How the fund is helping make a difference

  • There will be more pieces of plastic in the ocean than fish by 2050 according to the Ellen Macarthur foundation research.
  • The Fund invests into a company that provides Reverse Vending machines to facilitate deposit recovery schemes. It’s a growing market thanks to strong interest from Governments.
  • By reducing waste and increasing recycling, it’s stopping more plastic getting in the ocean.

Impact investing within a portfolio

The blend of positive impact and positive return is a compelling drawcard. A common feature of impact investing is its focus on transparency, with plenty of information to help investors understand how their money is managed and the impact their investment is having.

Rather than an entire portfolio overlay, impact investments are typically used as a ‘satellite’ within a portfolio, alongside more traditional investments. When considering impact investments, there are some important potential risk areas to understand.

  1. Is there an impact hurdle or financial trade-off that investors are exposed to? Some impact investments may have staged return expectations to achieve certain impact objectives.
  2. How concentrated is the portfolio and how diversified are the underlying investments?

Importantly, as with any investment, you should always consider how the strategy aligns to a client’s overall financial and social goals before deciding on its appropriateness in a portfolio.

A full list of investment options that prioritise sustainability, including the impact investments mentioned in this article, is available on BT Panorama to help identify those investments that may have a greater degree of focus on sustainability outcomes.

 

1 https://thegiin.org/impact-investing/need-to-know
2 https://impactinvestingaustralia.com/new-impact-investing

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