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Impact investing, ESG, SRI, asset management

Impact investing shouldn’t be confused with philanthropy — it must earn a good return as well

  • 29Jan 18
  • Keith Skeoch Co CEO, Aberdeen Standard Investments

This year’s World Economic Forum was dedicated to “creating a shared future in a fractured world”. As the discussions unfolded in Davos last week, those of us in the investment community had some important insights to offer – particularly regarding the benefits of impact investing.

Our shared future is an increasingly important concern for investors. All of us on this planet face a number of crucial challenges: climate change, rising inequality, poverty and unsustainable production and consumption. The United Nations has set out an agenda for sustainable development to tackle these challenges, with 17 goals and 169 specific targets to be met by 2030. Socially responsible investing (SRI) offers one way for investors to help address those aims.

Of course, SRI is nothing new. But it’s now increasingly recognised not only as a niche pursuit for those who want to deliver social and environmental benefits, but as a shrewd investment approach in its own right.

Yet that approach is being refined and developed. What we term ‘impact investing’ represents is a shift from avoiding the negatives to embracing the positives. Conventional SRI screening aims to omit potential investments that have negative effects on people or the planet. Instead, impact investment tries to create social and environmental benefits through allocating capital to companies that deliver positive developments.

Investment – unlike speculation – should always be win-win. It’s about nurture, not exploitation.

Impact investing shouldn’t be confused with philanthropy. The point of the exercise is not only to do things that are socially useful, but to earn a good return as well. Win-win, in other words. Of course, investment – unlike speculation – should always be win-win. It’s about nurture, not exploitation. So, rather than being simply philanthropic, impact investing is a far-sighted and common-sense approach to achieving returns.

Nor should those returns be seen as second-best. Closely linked to impact investing is the concept of sustainability. Impact investing is inherently long-term in nature, because it focuses on developments that can deliver benefits to humanity over many years.

Investors in the companies that create such developments can achieve steadier and more durable returns than those available from companies with shorter-term strategies. In a world in which speculation has returned with a bang (perhaps soon to be that of bubbles bursting!), a long-term, sustainable approach is both welcome and important.

The asset management industry has a crucial role to play in helping companies to deliver positive impacts. It’s not just a matter of picking companies that are doing good work, but about working with management teams to ensure that they maintain and sharpen their focus on a sustainable future.

That focus should be reflected in measurable and regularly disclosed outcomes, and in an operating model explicitly designed to achieve positive societal and environmental impacts. And it should also be reflected in positive financial returns – because without those, no company is sustainable.

Ultimately, impact investing involves harnessing the drive for financial returns of investors to the wider interests of our planet and its population. At Davos last week, we aimed to show how this win-win approach can help to heal our fractured world.

This article was published in Financial News on 24 January 2018.





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