Good With Money interviewed Damian Payiatakis, head of impact investing at Barclays, which runs the Barclays Multi-Impact Growth Fund, a fund of impact funds.
There’s a lot of kerfuffle about the need to achieve one single, catch-all definition of the type of investing that helps rather than hinders world problems right now.
It’s fair enough that the industry – and investors – want to feel they know what everyone is actually talking about when the words “sustainable” or “responsible” or even “ethical” crop up in the context of investing, as within these terms in particular, there is a lot of room to manoeuvre.
The problem is that fund managers like to differentiate themselves and one of the ways they do this, in this niche but growing world of “better” (for want of a better word) investing is to create new approaches and strategies that differ slightly from the next.
After all, there is also lots of room to manoeuvre among mainstream funds and investment strategies within the same sector – not all emerging markets funds are the same – we don’t expect them to be – so why do we expect ethical/ green/ SRI/ ESG and impact to conform? To fit neatly into a little shoebox-sized definition we all perfectly get? To each wear the shiniest of halos?
Those within the industry give themselves a really hard time – but perhaps they need not?
Perhaps this diversity of approach should be embraced rather than forced to conform, so long as everyone gets that ethical is not necessarily, by definition, the same as sustainable; sustainable is not necessarily, by definition, the same as impact, and so on and so forth, then we can accept that what we have is a smorgasbord of responsibility levels and thematic focuses and as long as everyone is being up front about what’s in everything and not deliberately misleading and actually being policed and questioned a bit, then that’s fine.
Damian Payiatakis, head of impact investing at Barclays, which, a year ago, launched its Multi-Impact Growth Fund, a fund of impact funds, is certainly making a virtue of the diversity that exists just within the “impact” space – the most popular type of “responsible” investing now because it seeks to only invest in companies that are solving world problems rather than making them worse.
But for starters, let’s get this definition thing clear, from the perspective of Barclays, for the purposes of this interview write-up, at least. Damian says Barclays sees impact investing as “investing intentionally for financial returns and societal outcomes, to protect and grow assets and make a positive impact to our world”. Got that? Good.
Knowing the house view is important, for the avoidance of any confusion and/ or resentment that any fund is not doing what it says, or indeed what you think it says, on the tin.
The aim of the Barclays Multi-Impact Growth Fund is very much to do exactly what it says on the tin, and to make sure that everyone has read and understood the label.
It’s a totally new way of thinking about investing, but without letting go of the main profit motivation
What type of investors are buying into this approach?
There are typically two ways into impact investing, says Damian.
First, there are those investors who are primarily money-focused – they want their money to make a good return for the financial goals, like retirement, a house, or children… and once they are on this journey for their cash, they then might ask: ‘Do I care about impact my money is making’?”
It’s still a new field and there’s still apprehension, so, Damian says, this group are likely to leave their core portfolio in place but maybe put a bit into impact. Their reasons vary from a sense of moral duty to seeing better investment opportunities in impact companies, but “interestingly, ‘for the kids is becoming a more frequent reason”.
The second entry point for investors into the fund is the desire to have a 100 per cent positive impact portfolio with their money and asking ‘How can I do that?’ Here investors want to have all of their investments aligned with their impact preference, and are looking for a single investment solution to this challenge.
“One way or another, it seems to be about the impact they want to have on the world. People are asking ‘what kind of legacy do I want to leave?’” Damian says.
It’s a totally new way of thinking about investing, but without letting go of the main profit motivation. It’s more holistic, tying in not just with people’s financial goals, but with their world view and desire to do their bit.
If people are integrating consideration for the world into other parts of their life, such as how they shop and travel, the question is then: ‘How do I invest?’ ‘How do I express myself through my investment choices?’
Barclays also sees people buying into the idea of getting emotional returns from where their money is as well as financial ones. “The interesting question is how the idea of emotional returns might influence the existing behavioural biases we have that hinder good investment decisions. Thinking about impact might help investors overcome these biases, such as a loss aversion that stops them from getting invested. In this case, an investor might think ‘If this investment supports something I care about, therefore I can get over my nervousness about potential loss and start investing ’.”
A lot of fund managers now use the UN Sustainable Development Goals (SDGs) as a proxy for demonstrating their impact. Is this effective? “The SDGs are a good rallying point but not an investment framework. We’re seeing more companies and fund managers using them as a signalling tool. A few have been diligent about recording how they measure up to the goals, some have used them as a theory of change. But impact investing is not just about the SDGs. It should be good for the world in general, not just for one goal.”
Why did Barclays launch an impact fund?
In response to interest from investors. “Our stats show that around two thirds of investors are interested in impact but only 15 per cent had made an impact investment in 2017.”
The fund is designed to fill a gap in the market: “But it’s hard for people to find funds and invest confidently. We thought we were well placed to use our investment process and capabilities, and incorporate impact to create a holistic offer and to ‘democratise’ impact, by making it more accessible.”
But it’s also about efforts to make Barclays more sustainable as a business. “We’re not just adding a couple of products and hoping for the best. This is part of a big internal change process. There’s now an impact module in our training for client advisors. For the first time really, bankers are starting to talk to clients about this type of approach,” says Damian.
In fact, it’s just the way the world is going.
Can you still diversify and invest only for impact? “Yes”, he says: “there is now geographical and asset diversity possible within this approach.”
But it’s also got pretty decent claims to being the best way to invest for good. “Every investment makes an impact. We believe incorporating impact as a practice is the better option to help clients seek both financial and personal ambitions.
Using ESG (Environmental, social and governance) considerations provides one aspect around impact; but it’s a partial view on how a company operates, not always including the outcomes of its goods or services.
Ethical investing is a lot muddier. My ethics are not your ethics. For instance, genetically-modified food, there are ethical reasons for and against this one. Ethical means excluding companies based on personal or religious norms and values, so you don’t have the option of engaging with companies.
Impact has more challenges to implement but a lot more opportunity.”
Any excuses left not to invest in this way? Certainly not from where we’re standing.
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