This article is from The Good Investment Review, October 2022, which is available to download for free here.
The prospect of helping to create a better world while making a solid return on your money might sound too good a combination to be true.
Yet it can be a reality. You can support companies that aim to be transformational for climate change, education and food, among other issues. One way to do so is via ‘impact investment’ funds. As the name suggests, these funds only put money into companies with positive measurable impacts.
The Positive Change Fund shows how impact investing works in practice. Edinburgh-based investment management company Baillie Gifford runs it.
The Fund invests money in companies that:
- contribute to a more sustainable and inclusive world
- offer products and services that are likely to be adopted because they are better than alternatives
“It’s all about changing the status quo,” says Michelle O’Keeffe, a senior impact analyst with expertise in climate change. “None of the companies we invest in are going to solve the world’s problems on their own. Yet together, they address challenges in ways that excite customers.”
Many of the Fund’s holdings focus on the environment. For example, plant-based food producer Beyond Meat aims to cut how much carbon is released into the atmosphere because people eat animal-based products. Up to 37 per cent of total greenhouse gas emissions result from the food system, O’Keeffe says, with livestock and the crops they eat among the contributors.
“Beyond Meat offers an alternative to meat which is far kinder to the environment,” she adds. “And its message is smart. Instead of telling customers that meat is bad, it offers a great alternative.”
Energy giant Ørsted is another portfolio company. It sold its oil and natural assets to become the world’s largest offshore wind developer.
“It’s doing exciting things, such as developing floating offshore wind turbines for places where it can’t get down to the seabed,” says O’Keeffe. “From a technical perspective, this is ridiculously complicated. But it gives much more capacity for power generation.”
Back on dry land, Deere & Co, the maker of John Deere tractors, is among the Fund’s biggest investments.
It has pioneered digital techniques to reduce chemical usage and greenhouse gas emissions.
“Machines with cameras and sensors are fitted onto tractors that can identify whether something’s a plant or a weed,” says O’Keeffe. “They then apply the smallest amount of pesticide or herbicide needed for that individual plant.”
The Fund also has a stake in the world’s bestselling electric car manufacturer. “Tesla has been successful because it’s built cars that people want to drive,” says O’Keeffe. “Yet there’s much more to its success. For example, while it manufactures batteries, it also recycles them. This presents a huge opportunity to refine the process from end to end.”
Learning a new language
Positive Change also targets social issues. DuoLingo, for example, uses an app to teach dozens of languages. ‘Superlearners’, who pay for extra quizzes and add-on features, effectively subsidise others’ free use.
“We’ve seen its adoption go viral in many countries,” says Edward Whitten, the Fund’s other senior impact analyst. “Learning a new language lets some people do jobs that they wouldn’t be able to get otherwise. It raises incomes and the potential for economic growth.”
Another holding, Nubank in Brazil, provides access to basic banking services.
It serves Latin American customers who would otherwise lack a debit or credit card, have no place to safely keep their earnings and be unable to borrow money to improve their lives.
“Nubank provides free bank accounts in a place where traditional banks charge fees, which many can’t afford to pay,” Whitten says. “That helps people become more resilient and self-sufficient.”
Positive Change’s managers also act as influencers.
Asset managers, including Baillie Gifford, use their influence as large shareholders to take part in ‘engagements’. These range from one-to-one conversations with management to votes at yearly shareholder meetings. They provide a way to encourage companies to improve their behaviour.
For example, the Positive Change Team supported Beyond Meat to improve its sustainability reporting. “As a young company, it’s had to develop ways to report the environmental impact of its products among other disclosures,” says O’Keeffe.
The Fund’s managers also encouraged a change of practice at FDM, a recruitment firm that helps people return to work after breaks.
“Previously, it wasn’t paying trainees,” Whitten explains. “We made our concern clear to the firm last year, and it finally committed to paying. As one of the voices saying this was the right thing to do for the longer-term, we were delighted.”
Investors increasingly see impact investing as a way to have a positive influence themselves.
And when “companies succeed in having a great impact,” O’Keeffe says, “they also increase their chance of maximising returns”.
For more information, visit the Positive Change Fund website.
Risk warning: Please remember that the value of your investment can fall and you may not get back the amount invested.