Asset managers can play a vital role in helping to address these issues through equity impact investing. This involves investing in organisations that are attractive from a financial position, but whose activities, technologies or products are designed to address the planet’s long-term problems. 

 

Burgeoning opportunities for creating impact

 

The success of these companies can create value for long-term investors, both financially and socially. Asset managers can harness the power of these opportunities by purchasing company shares and creating an equity impact fund. Such funds can have specific goals, such as concentrating on job creation and employee wellbeing, or can be more broad-based, addressing a range of social and environmental issues.

How to ascertain whether a company is having a genuine impact can be a challenge. In our view, impact investing must have two characteristics: the company must have the strategic intention to deliver a positive impact and this impact must be measurable. 

 

United in impact investing and progress towards SDGs

 

One framework for helping to identify the world’s challenges, and consider a corporate’s contribution to progress against these challenges, is the United Nation’s Sustainable Development Goals (SDGs).

These are a set of 17 global goals aimed at tackling climate change, rising inequalities, and unsustainable production and consumption. The UN has identified 232 indicators to measure progress against the goals, and asset managers can use these indicators to analyse the positive outcomes that companies are supporting.

For example, a businesses contribution to sustainable energy can be gauged against the proportion of its customers that now have access to clean energy or the amount the company invests in developing clean energy.

For companies, the UN SDGs can provide a framework to identify new markets and direct their efforts to the areas of greatest need. Supporting the SDGs creates tangible opportunities for companies to contribute positively to society and the environment, while simultaneously enhancing the long-term financial value of the business.

Aside from intention and measurement, it is important that companies report accurately and meaningfully on their activities. This can demonstrate transparency and accountability, and should help build investor confidence in impact investing. It also allows investors to make comparisons between companies and analyse the businesses in which they invest.

 

A bright future for investment solutions

 

The outlook for mainstream equity impact investing is bright, as investors look for financially attractive investment solutions that make a difference to the world. As more capital and expertise enter the market, we will likely see a wider range of investment solutions emerge that seek to address the numerous challenges highlighted by the SDGs. 

Importantly, impact funds will build performance track records during this time, which will help demonstrate the benefits of these type of investment solutions and cement their place in the vanguard of values-based investing. 

 

To find out more about impact investing or our ESG capabilities, visit www.aberdeenstandard.com