Can we consider impact investing when putting our money into listed markets?
If you’re like most investors, your investment portfolio is a diversified mix of publically-listed company stocks and bonds. While
you want your investment to grow in value, you may also care about what impact it makes in the world. But how can you be
sure that what you invest in supports both your core values and your portfolio’s need for strong performance?
Even though a company may be highly rated as an investment, what it produces could ultimately be harmful to people,
communities or the environment. To help you better assess whether a sound investment sits right with your values, we suggest
asking two key questions:
(1) How does the company operate?
(2) What goods and services does the company provide?
How can we assess a company’s operations?
Close to 2,000 global investment institutions, managing over $68 trillion of assets, are now signatories to the UN’s Principles for
Responsible Investing, which set out to incorporate in their analysis of investments, how companies operate beyond along with
the analysis of fundamentals. This type of analysis focuses specifically on three factors: environmental, social, and governance
By considering ESG, we can better identify when a company is at risk or has an advantage over its peers, allowing you to make
better investment decision. For example, organisational practices and culture can affect a licence to operate (see the
sanctioning of Uber in London), or make a company more or less prone to scandals or fines.
Ratings agencies, from specialists Sustainalytics and Trucost to the more mainstream MSCI or FTSE Russell, are collecting and
reporting ESG as a way of rating companies. Investors can now better understand the consequences of a company’s operation
and the impacts they generate in either, absolute terms (such as the amount of CO2 generated) or in comparison to their
competitors (e.g. gender diversity relative to their peer group). However, assessing a company’s impact is more than simply
attending to its ESG criteria – we also have to look at what that company produces.
How do goods and services create impact?
While many investors commonly avoid businesses whose products harm people or the environment, considering a company’s
impact can make a big difference in understanding its future potential. One company may seek to benefit from societal trends
that generate demand for new products – such as ageing populations seeking healthy lifestyles – while another may aim for
larger challenges, such as climate change, by providing profitable innovative solutions (see GE’s Ecomagination initiative).
Even some companies whose products have a negative impact can move to more sustainable products (many oil producers now
invest in renewables). Although we recognise the potential value in tackling urgent societal challenges, most companies’ goods
and services cannot alone achieve their loftier goals.
We encourage investors instead to seek companies that look at both the negative and the positive outcomes of their products.
And importantly, you still need to assess how well-run these businesses are.
Impact investing aims to protect and grow your assets and to make a positive contribution to our world. To achieve this, you
might want to consider investing through funds that specialise in selecting companies for impact.
All companies generate an impact both from the goods/services they provide and how they operate. As more people consider
impact investing for their portfolio, companies will adapt to incorporate better outcomes when they realise investors avoid or
select their investments based in part on their impact.
Investments selected for impact can fall and rise in value like any others. You may get back less than you invest.
All companies generate impact through how they operate and the goods and services they provide
While ESG focuses primarily on how a company operates, ‘Impact’ includes how a company operates and what that
You can invest intentionally to protect and grow your assets and to make a positive contribution to our world
Speak to your Wealth Manager to learn more about our Investment products and services