10TH MAY 2021 by ANNA SOLOMON . Spear`s
Impact investing has been steadily gathering momentum. It may soon go stratospheric
Investing evolves every so often. Once upon a time, returns – the money you get back when making an investment – were the only thing that really mattered.
The 1950s saw the popularisation of risk-adjusted returns, which allow investors to select portfolios according to their appetite for risk (which is mirrored, in theory, by the size of potential returns). Then, in 2014, G8 Social Investment Taskforce chairman Sir Ronald Cohen declared that the world of investing had started to move towards ‘risk, return and impact.’
In other words, along with the question of how much money investors stand to make and the risk they take on in order to make it, people had begun to ask: ‘What impact do my investments have?’
The roots of this trend can be traced back to the early 2000s. ‘We had something called ethical investing, which meant excluding certain things from your portfolio: arms, tobacco, gambling,’ says Jamie Broderick, director of the Impact Investing Institute.
This metamorphosed into ESG, the practice of investing only in businesses or initiatives that have good internal environmental, social and governance structures.
Fast-forward to 2021. ‘It’s migrated to something where the investments are even more proactively intentional, trying to target businesses that are delivering something that’s positive for society or the environment,’ says Broderick.
It’s not just about excluding the bad, but actively seeking out the good. Impact investing came about around a decade ago, and refers to investments in companies, organisations or funds that have the express purpose of having a beneficial impact on the world.
One early example ran between 2010 and 2015 when RAND Europe was commissioned by the Ministry of Justice to stage the ‘One Service’ at Peterborough Prison.
The idea was that private investors would fund interventions to reduce reoffending, such as introducing case workers to assess offenders’ needs and implement resettlement activities.
If the interventions were successful, the Ministry of Justice saved money, and these savings were paid back to private investors. The scheme allowed investors to ‘do well’ while ‘doing good’.
Today, impact investing is understood to be aligned with the United Nations Sustainable Development Goals, a collection of 17 global goals set in 2015, designed to be a ‘blueprint to achieve a better and more sustainable future for all’ and intended to be achieved by 2030. ESG still plays a part, however.
‘You’re still thinking about the internal operating practices of a company,’ says Damian Payiatakis, head of impact investing at Barclays. ‘There’s no point investing in a solar panel manufacturer who pollutes the environment, uses slave labour and doesn’t pay their taxes.’
In the last decade, impact investing firms have sprung up all over the globe. Tribe Impact Capital, the first dedicated impact wealth manager in the UK, is one of them.