REPORT: Impact Investing For Improved Outcomes

by Dan Atkinson

What if we dreamed bigger?

People who are worried about leaving a positive legacy tend not to wait until they die.

We can all think of people who use their time to have an impact, but donating time is not for everyone. Some people prefer to focus directly on another key resource - money.

When we are building up funds to become financially independent, we tend to invest long term. If we can use this money to support enterprises that aim to make money and make the world a better place, our investments can provide a greater sustained impact.

I'm not talking about philanthropy (which has its place), but rather impact investing, which I've written about before.

What if we all invested this way?

At the moment we have to actively decide to invest for impact. It's not the default, but it's rising up the corporate agenda. Consumers and investors are concerned about the sustainability of the brands they engage with. They can take their business elsewhere, but if the majority of people don't then the change they desire won't happen. This value shift will require shareholder pressure (either by engaging or by investing elsewhere).

What if we invested for impact as the default rather than something we had to make a choice to do? My team at EQ thinks that quite a few things might happen:

• New businesses would bring innovative solutions to social and environmental problems to market
• Existing businesses would shift their model towards sustainability
• Businesses resisting real change (or being found out as greenwashers) would see capital flow away from them
• Businesses would seek to maximise real societal value rather than just short-term shareholder returns

What if we focused on solutions not just avoiding harm?

The United Nations Sustainable Development Goals provide a bold framework. The goals are big and complex. We need to think about the problem as a system and seek out ways of engaging. As investors rather than philanthropists, we need to do this all profitably.

We can think about the ways of making an impact as ABC:

1. Act to avoid harm. This inward-looking approach might be the result of regulatory pressure (e.g. to reduce carbon emissions), business risk management (e.g. our customers would be upset by the potential harm), or just a desire to act responsibly (e.g. we want to avoid wasting resources).
2. Benefit stakeholders. This looks at the people and organisations that touch the business. They might want to be responsible employers, or to ensure that their suppliers are treated fairly.
3. Contribute to solutions. This sets out to address part of the problem by bringing innovative solutions to market or enabling them to become mainstream.

It's this last group of opportunities that are most exciting to investors who want to have an impact. They provide the greatest chance of creating the change that is needed and leaving a lasting legacy.

It's no surprise that our portfolios are heavily tilted towards solutions. We believe in getting into the detail and engage with the managers of the funds we invest with. This means that the impact that our clients have is multiplied as our influence and engagement affects those invested alongside them.

So what should we do?

First we have to decide if we care - but our research shows 51% of the British public do. A common objection to impact investing is the perception that the approach sacrifices financial returns. Recent research shows that this is not the case, and that sustainable investing actually reduces downside risk.

Then we need to:

• Assess what ways we want to make an impact (the ABCs)
• Review what's actually in the portfolio and whether it lines up with our monetary goals
• Be intentional about our investment decisions. Engaging rigorously to ensure that we are getting the outcomes you desire and are being promised
• Measure the impact and progress towards the goal

Just in regular financial planning, there's no point taking actions towards impact goals if you don't map the progress. There's no point making a half-hearted attempt at it - the stakes are too high. Together we can make the world a better place whilst enabling our clients to achieve their financial planning objectives.

To find out more check out our 2019 Impact report .

Dan's degree Music Technology degree helps him approach Financial Planning problems creatively. He is both a Chartered Financial Planner and a Fellow of the Personal Finance Society (PFS). Dan is an Accredited Paraplanner™ with CISI and is working towards the Certified Financial Planner™ certification. Having won several awards in his field, Dan continues to work with CISI and other organisations to support others involved in this area of Financial Planning by writing articles, and hosting conferences and events.

Outside of the office Dan is married to Hannah and has a young daughter who keeps him on his toes. He is also involved in his local Church in Hatfield.

The views expressed in this article are that of this author and do not necessarily reflect the views and opinions of Voyant.