The number of investors who want to make a positive impact to society and the environment continues to grow. However, misconceptions remain that prevent many from taking the plunge.
Here, we bust five of the most widespread myths associated with impact investing.
Myth 1: Impact investing equals lower returns
One of the most persistent myths about impact investment is that investors have to sacrifice returns for their principles. Raised on a diet of strongly performing oil, gas and tobacco stocks, many assume that in the bruising world of financial markets, investing for positive environmental and social change simply doesn’t stand a chance.
However, a growing body of evidence suggests this is not, in fact, the case. Instead, the opposite is increasingly proving to be true.
According to the Global Impact Investing Network (GIIN), 79 per cent of investors surveyed globally in 2023 said the performance of their investments had met or exceeded their financial targets, while 88 per cent said they had met or exceeded their impact targets. The GIIN surveyed 308 investors that manage $371 billion (£292 billion) in impact assets.
The latest Good Investment Review reveals that, despite a challenging market, positive impact funds have outperformed their traditional peers in many cases over the last five years.
Myth 2: Impact investing offers limited choice
Those picturing a narrow range of “worthy” causes might be surprised by the diverse and interesting landscape of impact investing.
It includes sectors like renewable energy, clean water, transport, affordable housing, healthcare and education. Impact investment opportunities are growing all the time. As much as investor interests are turning to sustainability, companies’ business models are too.
So, whether your passion lies in climate change, racial or gender equality, sustainable agriculture or biodiversity, you will find opportunities to align your finances with your values.
Myth 3: Measuring impact is too difficult
While measuring social and environmental impact can be more nuanced than tracking stock prices, it’s certainly not impossible. Established frameworks and metrics like the UN Sustainable Development Goals (SDGs) provide standardised methods for measuring the outcomes of impact investments.
Additionally, many investment platforms like Triodos, EQ Investors and The Big Exchange offer transparent reporting on the positive impact generated by their portfolios. This allows investors to track their contributions to the planet and society as well as financial returns.
Myth 4: Impact investing is for the wealthy
Investing is NOT just for rich people. Minimum investment amounts on some platforms are just £5 a month, though generally you can expect to put in around £50. If you have even a small amount of spare cash (spare is the key word here, if you need it for living costs or debt repayment, it isn’t spare), you can and should do it.
Platforms we like with low minimum regular investment amounts include The Big Exchange at £25 per month, AJ Bell at £25 per month, Interactive Investor at £25 per month and, if you want to start off even smaller, CIRCA5000 at £5 per month.
Myth 5: Impact investing is just a trend
Impact investing is not a passing fad; it’s a fundamental shift in investor mindset driven by several factors:
- Rising awareness of global challenges: Climate change, social inequality, resource scarcity and biodiversity loss urgently need solutions, and investors are increasingly seeking opportunities to address these issues.
- Growing demand for sustainable solutions: Consumers and businesses alike are prioritising sustainability, creating a market for products and services that align with positive impact.
- Strong financial performance: Impact investments can offer competitive returns, further fuelling investor interest and uptake.