Climate protests around the globe have raised awareness of the impact human beings and corporations are having on the environment. They have also caused many people to question whether the money they save and invest is a force for good or ill. Impact investing – investments that not only avoid businesses that are damaging to the planet and people, but actively support companies bringing about positive change – has never been more popular.
Almost one in three people have been inspired by the environmental movement to consider where their money is being invested, according to the latest Annual Impact Investment survey by ethical bank Triodos. This rose to 78% in the 18 to 24 age group. About 45% of investors say they would move their money if they discovered it was invested in fossil fuels. But impact investing is not just about environmental issues. It finances companies making positive social change in and around their business and in the world more widely, as well as demonstrating high levels of governance and accountability.
“Until recently, a lot of sustainable investing has been about exclusion – what not to invest in,” says Hans Stegeman, head of investment analysis and economics at Triodos Investment Management, the asset management arm of Triodos. “We’ve always had an investment approach that went well beyond exclusions, but recently we have raised the bar even more and we’ve moved to a strategy that all companies invested in are making a positive impact on society and the environment. More clients want sustainable products, so we do thorough research to find the real winners, those businesses that really understand what a sustainable future looks like.”
There is strong evidence of consumers and institutions divesting from so-called sin stocks or funds – those investing in areas such as arms, alcohol, tobacco or fossil fuels. The National Trust recently announced it was removing fossil fuel investments from its portfolio. But growing numbers of investors are going the extra mile and choosing to put their money into funds that meet high environmental, social and corporate governance (ESG) standards. Impact investing, as defined by the Global Impact Investing Network (GIIN), purposely seeks positive social and environmental outcomes. Evidence and impact data are constantly scrutinised to measure whether desired outcomes are being achieved. Above all, transparency and accountability are key to avoid greenwash and ensure stocks and funds really are as “green” or “ethical” as they claim. For example, Triodos was an early investor in electric vehicle pioneer Tesla, being attracted by its visionary green technology. However, while the company has led the way in promoting the use of electric cars, as it has grown it has sometimes failed to be as transparent in answering sustainability-related questions as the Triodos investment team would hope. As a result, Triodos opted to divest from Tesla last year.
“Investing for positive impact goes beyond avoiding harm and mitigating risks,” says Dame Elizabeth Corley, the Impact Investing Institute’s chair. “It’s at the centre of a wider movement towards more responsible investing.”
UK investors are seeing the merits of investing for good. Britons put £234m into ethical funds in June 2019, according to the Investment Association. Across the globe, impact investing was estimated to equal $502bn (£390bn) by the end of 2018, GIIN research shows. And with evidence that returns on sustainable investments often match or better those from sin funds, the myth that impact investing puts purpose over profit has been effectively debunked.
It’s important to remember that these are long-term investments intended to be held for at least five years as their value can go down as well as up, so you may not get back the amount you originally invested. As the Triodos funds are bought and sold in foreign currencies, currency exchange rates may affect the value of a Triodos Impact Investment.
Hannah Mackintosh started to invest through the Triodos Global Equities Impact Fund two years ago because she wanted to put money into ethically sound companies. The 27-year-old from Bristol says: “I started investing with Triodos Bank because I wanted to see my money supporting causes and companies I believe in. I was keen to support Triodos in its mission, but it’s not all altruism. My investment has grown substantially.”
Adam Robbins, a senior investor relations manager at Triodos Investment Management, believes young people are driving the acceleration in impact investing. “The generational wealth transfer beginning to take place from baby boomers to millennials is going to have a huge effect,” he says. “Younger people are demanding responsible business practice and they’re interested in sustainable investment. Simple growth and return to shareholders looks dated. Savvy companies will take into consideration wider issues, not just returns. And there will also be increasing pressure on fund managers to disclose where their investments are and how they link to environmental, social and corporate governance goals.”
Impact investing has long – even ancient – roots. Ethical investing was mandated by Jewish law in Biblical times, while the Qur’an also warns against exploitative investment. In the 18th and 19th centuries, Methodists and Quakers forbade investing in slavery. But concerns about moral money really gained momentum from the 1960s onwards as anti-Vietnam War protestors pressured university endowment funds not to invest in the defence industry. During the next decade, consumers boycotted businesses engaging with the South African apartheid regime.
Triodos Bank launched in the Netherlands in 1980 with a mission to make money work for positive change. It opened for business in the UK almost 25 years ago, with its investment arm emerging not long afterwards. Triodos Investment Management now has about €4.6bn (£3.9bn) in assets under management, with more than 750 investments worldwide. Potential investments must meet strict criteria to be chosen for inclusion in one of Triodos’s funds, demonstrating they do no harm, have a positive impact, as well as standing up to close financial analysis.
Central Japan Railway Company, Japan’s second largest railway operator, was chosen for investment by Triodos because of its record on reducing emissions – its trains between Tokyo and Osaka produce 92% less carbon emissions per seat than an airline taking the same route. Building material manufacturer Kingspan qualified due to its high-performance insulation that saved more than 192m megawatt hours of energy and 38m tonnes of CO2 emissions in 2018 alone. Given recent concerns about the negative impact of the fashion industry on the environment, sportswear brand Adidas may seem a surprising investment choice. But it is part of the Triodos Global Equities Impact Fund both because its products encourage a healthy lifestyle and the company is using more sustainable materials in its production processes. Its first 100% recyclable trainers are set to be launched in 2021.
“Our investments are for the long term, so we get to know a company and really engage with it,” says Pieter-Jan Hüsken, Global Equities Impact Fund manager at Triodos Investment Management. “We work with the businesses and seek to influence them through our relationship and our shareholder voting rights. The transition to a sustainable future is what more people want to support, and through impact investing we’re working towards that goal.”
Discover impact investing with Triodos Bank
Like all investments, your capital is at risk – investments can go down as well as up, currency fluctuations can affect the value of your investment and you may not get back what you put in.
Find out more about the Triodos Impact Investments funds.
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