Ethical is no longer enough – investors want an impact

Written by Rebecca O'Connor on 19th October 2017

First, there was screening out arms, tobacco and animal testing.

Then, there was “sustainable”, “socially responsible” or the catchy “ESG”investing.

Now, with the need to save the world from itself ever more urgent, and with the UN giving us the handy framework of the UN Sustainable Development Goals, plus (perhaps this is the deal breaker) the greater potential for double-digit profit now coming from solutions to global problems, such as CO2 emissions, rather than from sticking with the status quo of fossil fuels and plastic dumping, for example, there are now an ever decreasing number of reasons to invest in ANY OTHER WAY, except for positive impact.

Convinced? Standard Life certainly is. Yesterday, the multi-billion investment group launched its first impact fund – the Global Equity Impact Fund, co-managed by Sarah Norris and Dominic Byrne.

Impact investing is not just about rewarding those already making a difference, but about shifting the might of the capital market to change the world for the better

The move follows last week’s launch of a multi impact growth fund from Barclays and Blackrock expanding its European ESG range with a global equity ETF.

Impact investing involves investing in companies that have the intention of generating measurable positive social and environmental impact alongside financial returns. While environmental, social and governance analysis has become an integral tool for investment managers, screening for positive impact is taking it one step further – it’s not stopping at “doing your bit”, it’s full on donning your cape and taking to the skies against the baddies trying to destroy the universe.

Or, as Standard Life put it more soberly yesterday, impact “is ready to enter the mainstream”.

This trend has been helped along by the slow dawning realisation in the investment industry that the companies it depends on – oil companies, mainly, are in steady, structural decline. Whereas impact activities, over the long-term, look more promising. They are set to benefit from the “mega trends” of resource constraint and energy efficiency, for example, while the incumbents scratch their heads and realise that helping these causes may just be beyond them.

As other stand-out impact funds do (and you can read our latest report, in association with 3D Investing, on impact, here) Standard Life Investments has used the universally accepted 17 United Nation’s Sustainable Development Goals (SDGs) as a framework to develop its own impact process and analysis.

All 17 SDGs are incorporated into the fund and the UN’s associated targets inform the investment
process. The Fund then invests in companies whose activities, technologies or products are specifically designed to provide solutions in areas such as healthcare, education, poverty and many more.

The fund is structured for investors who want to invest for a better future and is managed using five principles:

• To support the delivery of measurable, positive environmental and social impact while seeking to
generate strong financial returns
• A bottom-up, company-specific investment approach
• Rigorous peer review of investment ideas at every stage in the investment process
• A forward-looking, long-term approach
• Active company engagement

The fund will have a “high-conviction portfolio” of 35-60 stocks. To ensure that companies are making a genuine impact through the products they make or the services they provide, Standard Life says each company must intentionally direct its resources towards making a positive environmental or social contribution, must actively implement this strategy in its operations and the impact must be measurable.

Euan Stirling, Global Head of Stewardship and ESG Investment at Aberdeen Standard Investments said: “Impact investing is not just about rewarding those already making a difference, but about shifting the might of the capital market to change the world for the better. The world faces numerous challenges, from climate change and poverty, to inequality and pollution. As asset managers, we believe we can play a vital role in helping to address these issues. Through the Global Equity Impact Fund we aim to have a positive social and environmental impact, while still delivering an above-market financial return for our clients”.

Sarah Norris, fund manager, said:“Asset owners are looking to embrace impact investing but lack appropriate investment solutions. The UN’s SDGs provide a common language for impact solutions that help unlock impact investing for mainstream investors. Active management is an essential component of successful impact investing. Engagement with management is necessary, both for impact analysis and to encourage better behaviours and disclosures.”

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