The (Overton) window is open for impact investing

Written by Rebecca O'Connor on 25th May 2018

Imagine if, while choosing funds for your ISA, you could compare the impact on the world of your investments, as well as historic returns?

Or instead of, lemming-like, simply picking one of the top ten most popular funds on a DIY investment platform, or blindly selecting the uninspiring “moderate risk” option on a robo-investment platform, you could easily choose your funds based on a combination of what good they will actually do in the world, as well as their financial returns?

Such a reality came a step closer today as WHEB, the positive impact asset manager, unveiled its fourth impact report and a new way of calculating an individual portfolio’s impact.

The notion of sustainability or impact has sometimes been considered rather woolly – a set of vague platitudes that went as far as enabling governance teams to tick some boxes, but no further.

But that really depends on to whom you are talking – because if it’s the team at WHEB, sustainability is a quantifiable thing – both from an environmental, but now also from a social, perspective.

The fund management team has been developing metrics that enable them to measure all types of positive impact in meaningful ways and the result, as well as the report, is this useful impact calculator, which allows an investor (ie. me – full disclosure – I have some of my ISA in the WHEB fund) to enter the amount they have invested in the fund and see what impact that has had in terms of things like CO2 emissions reductions, hours of tertiary education received, number of patients treated in hospital, etc.

For those of us who like our money meaningful with an extra dash of feel-good – this is pretty exciting.

Thus far, one of the difficulties with “mainstreaming” positive impact has been creating a transparent and universally accepted way of measuring that impact. Cold, hard financial returns are much more straightforward: everyone knows where they are with an annual %. But impact has a certain margin for subjectivity and interpretation which isn’t so palatable in this spreadsheet-based investment world of quantitative value, not qualitative values.

But there is certainly demand for better impact measurement, and so the industry should find a way. The desire for all of us to do our bit is now unequivocally mainstream, as recent Daily Mail covers on reducing plastic and cleaning up air pollution testify.

Seb Beloe, head of research at WHEB, believes there is currently an “Overton Window” on sustainability concern for individuals and companies, which means that there is an opportunity for sustainability, like sliced bread or mobile phones, to just be accepted as normal, rather than fanciful wishful thinking, as it arguably was considered even a year ago.

This Overton Window is without doubt thanks to efforts from individuals (David Attenborough) as well as collective campaigns, such as the UN Sustainable Development Goals. These have given sustainability direction and clarity and have already had a huge influence on the investment industry. There are 17 of them, and taken together, can be a useful way of framing how fund managers and advisers measure the impact of an investment portfolio.

So WHEB’s ultra-transparent impact reporting (which doesn’t shy away from where the fund is not doing so well, for example, it lags the MSCI Index on % of female board directors within its companies) – and the efforts of others like WHEB who are genuinely trying to do the right thing with investors’ cash, are incredibly useful in pushing this forward.

One day, I’d love to see this type of impact calculator available via an ISA portfolio dashboard on an investment platform such as Hargreaves Lansdown, or Charles Stanley Direct, or EQ Selftrade alongside returns charts, as a given not just a nice-to-have.

There are of course platforms that already offer positive impact options, that are in this way, way ahead of the industry big guns. EQ Investors, the Good Egg robo platform founded by John Spiers,¬†for example, offers Positive Impact Portfolios which include WHEB, and there are a number of specialist impact wealth managers, such as Pennine Wealth Solutions, another Good Egg firm, Tribe Impact Capital, for high net worth individuals, and Castlefield, which also has an impact calculator similar to WHEB’s.

But the more fund managers who adopt and proudly display their impact metrics, the less excuse the laggards have for not showing us their true colours and the more us investors, from whom this impetus must come, will expect and ask for it.

For the Overton Window may be open, but some are still refusing to engage in the discourse.

As the demand from millennials and female investors in particular for a three-dimensional perspective on their investments becomes harder to ignore, I have no doubt that the entire financial services industry will have to find something to say.

At this future point, those such as WHEB, with a seasoned understanding of true impact, might just find themselves at the top of those “top ten most popular” fund charts, for entirely different and very positive reasons.

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