Here’s Why Impact Investment Will Produce Better Companies
There is mounting pressure for listed businesses to be more transparent in their practices.
The growing popularity of impact investment is driving a new breed of investors, and this increased demand has catalysed widespread change in the industry, resulting in better businesses that seek to prioritise social and environmental improvements alongside generating impressive financial returns. Here Tom McGillycuddy, Co-founder of Tickr, delves into the potential for impact investment to boost the prospects and performance of any company.
Due to a number of financial, economic and societal changes, most approaches to kickstarting a new generation of investors have failed. The distinct lack of business transparency, along with complex financial jargon, has deterred both savvy and first-time investors from putting their money into certain businesses or funds.
With the emergence of impact investing, this is about to change, with greater transparency and engagement between businesses and their shareholders slowly being met. While this is predominately being driven by investors, the boards of current or soon to be listed businesses need to take note of the definition of impact investment and how their business could qualify to be included as an impact investment opportunity.
By definition, impact investing is whereby investments are made into businesses with a view to generate positive social and environmental change, reflecting wider changes across the industry and society, propelled by this new generation of investor. As an example, one such business, committed to maintaining a culture of sustainability is a household name – Adobe. Named on the Dow Jones Sustainability Index (DJSI) – the highest standard of corporate responsibility reporting in the investor community, Adobe has worked hard to uphold rigorous standards of sustainability and prioritised corporate responsibility. Moreover, Adobe is renowned as a global leader in gender equality and its commitment to renewable energy helped Adobe achieve the A List on the Carbon Disclosure Project. Adobe’s successful impact initiatives show that their achievements are attainable for other companies.
Shares and funds operating under the social impact banner will be preferred to ones that are not. This is because it brings investors closer to the businesses they are putting their money into, builds trust in their business, their vision and their management team, and aligns closer to their personal principals whilst of course still offering significant financial returns. What’s more, there is a real diversity of businesses on offer; from clean energy funds, to those dedicated to addressing needs of an ageing population, and socially transformative technology. The opportunity to tackle such a breath of issues appeals to the new wave of investors.
It is possible for most businesses to harness the growing momentum behind impact investment, with many now taking the same level of considerations into account to address social and environmental targets and of course ensure that investors make financial returns. Rather than the ‘greenwash’ of old, these businesses are genuine in their approach to meet new standards of sustainable practices, such as the importance given to business integrity reports, which will in turn foster more ethically and environmentally conscious organisations. In the long run, this will help to promote more efficient companies which are transparent and in tune with the ethics of the modern investor and consumer. It is evident that the benefits of impact funds are far reaching and extend beyond the initial causes they are intended to support.
Impact funds offer greater opportunities for investors, and the sector has the potential to change the very nature of investment. The UK is regarded as one of the world’s most vibrant impact investment markets; a leader in innovation and sustainability. There are numerous benefits to investing in impact funds, namely that listed companies are diverse, span a wide range of sectors, and offer varying levels of risk. The ability to measure the effect of investments alongside financial returns will lead to more consistent and stronger economic performance across the board.
Moreover, the ability to measure the efficacy of long-term returns, in both financial and social terms, encourages investors to keep their money in investment for longer, which ultimately improves financial returns. One of the greatest misconceptions about impact investment is that investors should expect below market-rate returns on their investments. Prominent investment managers, including Credit Suisse, and JPMorgan Chase, have added impact funds to their portfolios in recent years, many of which have outperformed conventional PI funds. Businesses like Tickr help investors to achieve their personal financial goals while still making a significant impact. Therefore, businesses ought to view impact investment as a means of reinvigorating the investment industry as a whole, by providing impact-orientated funds which are consistently well-performing.
One finance company committed to sustainability in business is the crowdfunding platform Crowdcube. Patrick Ryan, who has successfully raised funds for more than 750 businesses on the Crowdcube platform, recognises that impact funds are shaping the nature of the investment industry for generations to come. He has found that people are more inclined to take responsibility for their investment footprint and are particularly concerned about the consequences of their investments. By offering varied investment routes for those seeking to address social issues such as climate change, fair education and gender equality, impact investment funds can provide investors with the portfolios they demand, whilst fostering a strong relationship based on trust and transparency between consumers and companies.
Thus, the increasing popularity of impact investment promises to change the industry, leading to the creation of better businesses. If businesses 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.