How to make the greatest impact with your investing

One of the growing trends in personal finance is making investments by considering their positive social or environmental impact. So, how can you make the greatest impact with your investing?

How to make the greatest impact with your investing
Manish Vekaria
Manish Vekaria
22/12/2021

Are you making your money count?

One of the growing trends in personal finance is making investments by considering their positive social or environmental impact.

Investors who want their money to make a difference are increasingly turning to impact investing. However, it is important at this stage to note that this is not the same thing as ESG investing, which I discussed in a previous blog.

ESG investment is usually focused on specific companies that have committed to improving their corporate governance or reducing their emissions, for example. Impact investing is more about putting money into businesses that were set up to ‘do good’, such as a non-profit organisation dedicated to the development of clean energy sources.

A measured approach

There are a growing number of portfolio managers that are highly focused on this area, but as always the first port of call is to seek advice — or at the very least to take the time to find out the impact aims of each fund since they often focus on different issues.

Investors should also discover how the fund is working to measure its positive impact and how it deals with challenges when they arise.

The benefit of using an adviser is that some of the structures used to make impact investments can be quite complicated and unfamiliar to a regular retail investor, especially if they are not used to making direct investments in businesses.

Decisions, decisions, decisions

The good news for prospective impact investors is that the range of options for making this type of investment is expanding rapidly.

James Alexander, chief executive of the UK Sustainable Investment and Finance Association points out that many UK investment managers now offer a wide range of responsible investment products, such as social impact funds. One growth area is funds that seek to specifically address biodiversity related risks and opportunities.

Other options include investing in companies involved in the clean energy market or the provision of affordable housing. Big Society Capital research suggests social property and social lending funds combined account for 87% of the impact investment market in the UK.

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Change is good

While impact investing is different to ESG investing, what it has in common is that it should not come at the expense of profit. Stephen Muers, CEO of Big Society Capital says many of the investments his organisation supports which have been the most financially successful are also driving the greatest social change.

But while our values tend not to change over time, our priorities might. For those new to impact investing it might be prudent to make subtle changes to portfolio allocations initially and reviewing the impact of these changes regularly.

Circumstances change and it might be the case that making investments that align closely with specific values becomes less of a priority.

Key considerations

  • Don’t confuse impact investment with ESG investing, which focuses on organisational behaviour
  • Identify the specific benefits you wish to generate from your investment
  • Make sure you understand the specific objectives of the fund/company you are investing in
  • Discreet changes to equity allocations can be a good starting point for impact investors


Disclaimer: This is not financial advice, simply a financial opinion

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