Impact investors must quicken their pace

Written by Erik Breen on 4th Apr 2019

Taken from the Good With Money Guide to Impact Investing, Erik Breen, Head of SRI funds at Triodos Investment Management explains why he believes impact investors need to do more, faster, to raise awareness of how we can – and must – all do Good with our money.

As a stream of ‘sustainable’ fund options continues to flow into the investment market, it can be challenging for advisers and customers alike to establish what a fund labelled as ‘green’, ‘ethical’ or ‘responsible’ actually offers.

Yet with the UK’s ethical investment market reaching a record high, now is the time for the industry to act – not only to ensure that its funds stand up to scrutiny, but also to lead the way in a transition toward a sustainable system that respects our planet’s ecological balance and works for the benefit of all.

The sector could look more closely at the environmental and social implications of its investment decisions. Environmental, Social and Governance (ESG) and exclusion-focused funds make up the overwhelming majority of the market’s options and eliminate companies according to different criteria to be left with ‘no harm done’ or ‘best-inclass’ portfolios.

It’s encouraging to see that appetite for this kind of responsible investing through listed equities and bonds is growing and that investors are beginning to look beyond purely short-term results. However, if we are to meet the UN SDGs and the Paris climate goals, ESG is no longer good enough.

Deepening accountability

The sustainable investment community needs to deepen its accountability and quicken its pace. It is not enough to invest in ESG best-in-class companies that, within their sector, may just be the least damaging.

We need to call upon fund managers, advisers and investors to not just eliminate the ‘bad guys’, but also to focus first and foremost on including the ‘good guys’. By doing so, we go beyond responsible investing, and really start to invest with impact through listed equities and bonds.

We understand that this change will not happen overnight. Instead it requires simple steps to help change the economic system from an exclusion-based approach towards investing exclusively for positive change.

While the EU continues its important work to develop a classification of activities and assets into ‘sustainable’ and ‘non-sustainable’, we have to consider how we invest in companies that demonstrably make a positive contribution.

Triodos Investment management, for example, has developed seven ‘Sustainable Transition Themes’, in line with the UN SDGs:

1. Prosperous and healthy people

2. Social inclusion and empowerment

3. Sustainable food and agriculture

4. Sustainable mobility and infrastructure

5. Innovation for sustainability

6. Circular economy

7. Renewable resources

You can find out more about these in our 2018 white paper: ‘Impact investing through listed equities and bonds’.

At the same time, strict negative screening can be applied, sifting out any companies that have a harmful impact on people and planet. These include those with products and services related to arms, fossil fuels, tobacco, gambling and animal testing.

As far as we are concerned, there is no such thing as a neutral investment. For a truly sustainable future, we must invest solely in companies that actively contribute to a healthy planet and sustainable societies.

Triodos Bank UK offers socially responsible investment (SRI) funds that invest in stock market listed companies providing solutions to sustainability challenges. You can invest in the Triodos SRI funds directly or via the tax efficient Triodos Stocks & Shares ISA. Visit www.triodos.co.uk/ethical-investments

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