The impact investment opportunity

By Tom McGillycuddy on 1st January 2019

Robo-Advice

The co-founder of new investment app Tickr makes the case for 'green' investing, spurred on by a new wave of people hoping to generate positive environmental and social change from their portfolios as well as a decent return.

The impact investment opportunity

In recent years, the conversation surrounding savings and investment has failed to engage a new generation of investors. This can be attributed in part to cautious attitudes towards the financial sector following the 2008 crash, a distinct lack of transparency from existing options that are brimming with financial jargon, and a dearth of innovation in the industry when it comes to first time investors. When it comes to making investments, it’s clear today that people are more concerned than ever before about where their money is going and what they invest in.

The growing popularity of impact investing, whereby investments are made into businesses with a view to generate positive social and environmental change, reflects wider changes across the industry and society in general, and it’s being driven by the next generation of investor.

Impact investment is attracting a new wave of investors, who deeply believe that generating positive environmental and social change is of equal value to making significant financial returns. Impact funds, which actively invest in companies that are addressing environmental and social issues, are growing in popularity. A recent survey conducted by Morgan Stanley reveals that millennials are twice as likely to invest in funds that reflect their values and beliefs, illustrating the demand for integrity and transparency.

It is apparent that there is a shift in attitudes amongst this new generation, who, unlike their predecessors, are not exclusively concerned with making impressive returns, but want to invest in a more prosperous future, whilst still seeing positive returns at the same time. Impact investment appeals to people who want to seek a tangible way to implement change in areas such as climate change, and on social issues, like gender equality. Nordea, the Nordic financial services group, recently published a report concluding that the single most important thing people can do to help tackle these issues, is to align their savings with companies aiming to address them.  

People inside and outside of finance are now used to discussing their carbon footprint, but impact investing can add another layer to this: allowing people to take control of the social and environmental footprint of investments.  

Impact investment also has the power to influence global businesses. Many companies now take the same considerations when ensuring that investments make financial returns as they do when they are addressing social and environmental targets, and the direction of travel here is only one way. As the sector grows, new expectations and a demand for transparency will put pressure on more companies, helping to introduce common, and better, standards for global businesses.

Options for people who want to invest with impact have been relatively scarce up to now. But, technology has great potential to make impact investing more accessible to a wider audience. App-based investment platforms, for example, are easy to use and help to expedite the process of directing money to funds that are more closely aligned to individual beliefs. Choosing to invest in one fund, or one provider, over another, is effectively a buying decision. With technology, we can get more and more people making conscious buying decisions, which can have a ripple effect on society.

Today, there are several misconceptions surrounding impact investment that remain. Namely, that in order to invest in this way, investors should expect to sacrifice some return on investments. Though the sector is still relatively young, impact funds are slowly proving that both returns and impact can be achieved, and neither needs to be compromised.

This speaks to the very nature of many of the companies that qualify as impact investments: companies solving big world problems, often through innovative technology, that if solved successfully, offer sizeable return potential. And at its core, Impact investing is still founded on returns-based investment, just with an additional dimension, focusing on making a positive social and environmental impact.

If businesses continue to align social and environmental causes with profits, this will enable listed companies to actively tackle global issues at scale, achieving real social change, whilst making impressive financial returns.

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Companies in this Article:

Morgan Stanley

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