A few weeks ago, a young friend recently graduated from university proudly told me that she had started impact investing.
She is saving £30 a month via Tickr, a new mobile investment platform, and is – she believes – making a difference in areas from climate change to gender diversity. She is not the only one.
Since Tickr was launched in January 2019, it has signed up more than 100,000 customers in the UK. Most are young – the average age is 31 – and half are women. Nearly all are investing for the first time.
The only problem is that Tickr, at least in its current incarnation, bears little resemblance to what most in the investment world would understand as impact investing.
According to the Global Impact Investing Network, this requires that investments are made “with the intention to generate positive, measurable social and environmental impact alongside a financial return.”
In practice, this means investing in firms whose products or services make a positive impact on society or the environment – in other words, wind turbine manufacturers, sustainable food producers, electric vehicles and the like.
Aspirations
While Tickr’s founders say they “aspire” to this model, for the moment clients’ funds are invested in half a dozen or so exchange-traded funds (ETFs) of very varying levels of impact.
The only problem is that Tickr, at least in its current incarnation, bears little resemblance to what most in the investment world would understand as impact investing
It is not easy to find full details of these funds – apparently Tickr’s young clients are put off by being given too much information about their investments – but the firm does list five key companies under each of its nine sub-themes.
Some are uncontroversial. For ‘clean energy’, one of two climate change sub-themes, few would argue with the inclusion of Vestas or New Zealand renewable energy producer Meridian.
It is harder to see how investing in an Australian digital travel company (sub-theme ‘Ageing population’) or a South Korean mobile messaging platform (‘Automation and robotics’) will deliver meaningful social impact.
And while Adobe and Nike may have good records on gender equality, they would not figure in most impact investors’ portfolios.
Another digital platform due to launch later this year, also based in the UK and targeting the retail market, conforms more closely to the traditional definition of impacting investing.
Positive impact
Founded by Duncan Grierson, a venture capitalist and serial clean-tech entrepreneur, Clim8 Invest promises from the outset to invest clients’ money only in products and services that have a positive impact on climate change and the environment.
Portfolios will initially consist of a mix of individual stocks and selected sustainable funds – no ETFs – with additional filters to screen out underperformers on the other ESG metrics of social and governance.
For some in the industry, however, Clim8 also fails to meet the standards for impact investing. Purists argue that, by definition, investing in listed equities cannot provide the additionality required for genuine impact.
If you buy shares in a company from someone else, the company doesn’t get any of that money
As one banker puts it: “If you buy shares in a company from someone else, the company doesn’t get any of that money. And if it’s a liquid company, then your transaction is probably the billionth trade that minute in that stock, so it literally makes no difference to anything.”
By this logic, impact can only be achieved if the money invested enables a positive outcome that would not otherwise have happened – which is fair enough but makes impact investing primarily the preserve of venture capital and private equity.
Few retail investors, after all, can fund early-stage education technology companies in Indonesia or distribute solar panels in African villages.
An exception to this rather restrictive rule is sometimes made for shareholder engagement funds, where asset managers invest in small and mid-cap companies, and then use their clout and expertise to drive change – but these are still few and far between.
In 2018, Federated Hermes launched an Engagement Equity Fund, based on the UN’s Sustainable Development Goals, while in September Credit Suisse and Rockefeller Asset Management joined forces for an Ocean Engagement Fund targeted at both retail and institutional investors.
Whatever the definition, it is clear that appetite for impact investment is surging. Tickr is signing up 20,000 to 30,000 customers a month and expects to reach half a million investors within a year.
Clim8 has raised £1.3 million via crowdfunding – more than three times its initial target – and has 12,000 clients waiting for the launch of its platform, while Credit Suisse and Rockefeller raised more than $200 million for their ocean fund in just three weeks.
Good news
Arguments about investment criteria aside, this is very good news. It confirms that there is a huge market for responsible investment products and confounds the cynics who claimed that millennials wouldn’t put their money where their mouth is when it comes to environmental and social issues.
Does it matter that not all of the products coming to market adhere to rigid industry standards or that young would-be impact investors have little idea where their money is going?
Not really. Young investors will mature and so will fund management firms. Scale will bring scrutiny and encourage transparency, as well as creating opportunities for deeper engagement.
More importantly, the rapid expansion of impact investing in all its forms will give firms delivering positive outcomes for society and the environment confidence that they will be able to source the funding they need to develop and expand.
Ultimately, that is what will make a difference.
