In a world where the climate change and social matters are becoming increasingly relevant to us all, have you considered that how you choose to invest your money could have a positive impact? While there’s much talk these days about “Impact Investment,” what does that mean? The Global Impact Investing Network (GIIN) has defined some of the key characteristics as:
Intentionality: An investor’s intention to have a positive social or environmental impact through investments is essential to impact investing.
Investment with return expectations: Impact investments are expected to generate a financial return on capital or, at minimum, a return of capital.
A range of return expectations and asset classes:Impact investments target financial returns that range from below market (sometimes called concessionary) to risk-adjusted market rate, and can be made across asset classes, including but not limited to cash equivalents, fixed income, venture capital, and private equity.
Impact measurements: A hallmark of impact investing is the investor’s commitment to measure and report the social and environmental performance and progress of underlying investments, ensuring transparency and accountability while informing the practice of impact investing.
You might also choose to consider Environmental, Social, or Governance (ESG) issues when making decisions about your investments. Environmental covers how companies might perform against factors that directly affect the planet, such as their carbon footprint, energy consumption, or greenhouse gas emissions, while the Social element looks at how organizations manage their relationships with their employees, suppliers, and customers. Governance covers things like board diversity, structure, and pay, the avoidance of bribery and corruption, and management and culture.
For all EU domiciled investments, new regulations under the Markets in Financial Instruments Directive (MiFID) mean that your investment adviser must ask you about your interest in undertaking investments with a positive ESG impact. This means that they need to consider the ESG impact of the funds or opportunities they suggest, based on your appetite.
They should take you through the concept of ESG investing, as aligned with the 17 UN Sustainable Development Goals (SDGs) and then outline the variety of different approaches that fund managers might take.
For those investing outside the EU, there is currently no formal regulatory approach, but it’s worth discussing the investment types you’d consider and whether ESG factors or impact investing is something you’re interested in.
This article originally ran in the January 2023 issue of Dockwalk.