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The impact of investing

21 May 2020

5 minute read

All companies can have a positive or negative impact on the economy, society and the environment. While sustainable investing still appears to be somewhat on the fringes, we consider some of the barriers to investing and how to get involved.

Who's it for? All investors

The value of investments can fall as well as rise. You may get back less than you invest.

What you’ll learn:

  • The gap between action and intention with impact investing
  • The barriers to getting invested
  • Learn about some ESG funds on the Barclays Funds list.

All investments have an impact: as the owner of the shares or debt of a company, investors provide capital to finance that company’s activity. The coronavirus pandemic has brought to the forefront, now more than ever, how a company’s activity can either positively or negatively impact the economy, society and the environment.

Actions speak louder than words

When asked, most people express interest in addressing environmental and societal issues or feel a responsibility for making a difference. However, sustainable investing still appears to be at the fringes. In 2018, Barclays published an Impact Investing white paper exploring investor motivation. Impact investing refers to investments made into companies, organisations, and funds with the intention to generate a measurable, beneficial social or environmental impact alongside a financial return.

The paper found that while 56% of investors were interested in Impact Investing, only 15% had actually engaged in Impact Investing. While this figure has grown since 2015, a marked gap still exists between action and intention.

Please note however that due to the lack of long-term historical performance data on ESG-type investments, it is not currently possible to assess whether ESG investments offer a better or worse return than other types of investment.

Overcoming the barriers

One significant barrier may be because climate change and other societal issues occur over such a long period of time, their effects are incremental and are not usually that tangible. There is no doubt that the impact we have on the environment has become more noticeable. In addition, how individuals can help tackle issues by investing is not immediately clear, so many investors may not realise the potential impact, good and bad, of their investments.

There are now more standardised ways to measure the impact a company has, incorporating not only the effect of their products or services, but the way they operate within Environmental, Social and Governance, or ESG, areas.

It may be that, previously, investors felt the only way to have an impact was through investing in small, early-stage or unknown companies in other geographies. Now, however, you can have an impact through shares in well-known companies such as Microsoft, Nintendo and BT. This type of responsible investing help removes any barriers from a lack of familiarity. One piece of analysis1 demonstrated that investing sustainably can be 27 times better for reducing your carbon footprint than eating less meat, using public transport, reducing water use, and flying less, combined.

Investing with Impact

While it’s good to know that many companies, including Barclays, take their investment responsibilities seriously in all senses of the term, many investors want to go a step further and actively invest for good. This means investing not just for positive investment returns but in order to also have an explicitly positive impact on society and the planet.

To give just one example of such a company: EDP Renovaveis is one of the world’s largest producers of wind energy. Almost one billion people globally are functioning without electricity and wind farms can both address this need and reduce the amount of carbon dioxide going into the atmosphere compared to traditional fossil fuels.

There has been strong growth in the number of impact funds recently in the industry. Just over two-and-a-half years ago, we launched the Barclays Multi-Impact Growth Fund. It’s an award winning2 ‘one-stop shop’ blend of leading share and bond funds all focusing on having a positive impact. Example holdings include a fund targeting alternative energy and efficiency, a fund targeting social bonds and a fund targeting green bonds. The fund harnesses all the tried-and-tested elements of our investment toolkit such as tactical asset allocation and manager selection and successfully applies that to the impact space.

Alternatively, you may like to consider one of the other ESG funds on the Barclays Funds list. The Jupiter Ecology Fund and the Janus Henderson Global Sustainable Equity Fund are both share funds while the Threadneedle UK Social Bond Fund invests in bonds.

Funds are designed for the long term so you should only consider them if you can stay invested for at least five years.

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The value of investments can fall as well as rise. You may get back less than you invest. Tax rules can change and their effects on you will depend on your individual circumstances. Smart Investor doesn’t offer personal financial advice. If you’re not sure about investing, seek independent advice.

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