The impact of investing
How can investors actively invest for good?
Interest in making a positive societal and environmental impact is starting to be reflected in growing investor appetite for investment strategies that can help.
All investments have an impact: as partial owner of the equity 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 in the minority for retail investors. In 2018, Barclays published an impact investing white paper exploring the motivators of investors 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 the first survey in 2015, a marked gap still exists between action and intention.
Overcoming the barriers
One significant barrier may be because climate change and other societal issues occur over a long period of time. Their effects are incremental and are not usually that tangible. However, these issues are increasingly coming to the forefront, and with it, the pressure to incorporate environmental and societal concerns into investors’ plans.
In addition, how one 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. But this is also changing. There are now more disclosures and 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 also may be that previously investors felt the only way to have an impact was through investing in small, early-stage or unknown companies, often in developing countries. The truth is that you can have an impact through stocks in well-known companies such as Microsoft, Nintendo and BT. This type of responsible investing helps remove any barriers from a lack of familiarity. One piece of analysis 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 combined1.
A responsible investor
At Barclays we have been investing responsibly, in many different ways, for some years now. The United Nations established its Principles for Responsible Investing and we have been a signatory for over 3 years. The Principles aim to provide a menu of actions that allow signatories to contribute to developing a more sustainable global financial system. We have been rated A by the United Nations for how we apply these in our investment processes particularly as it pertains to the selection of external fund managers.
Secondly, we have an exclusionary screen across our products that relates to Defence activities. Our Defence policy essentially precludes investments in companies – debt or equity – involved in certain particularly unpleasant activities such as the production of Cluster Munitions or Depleted Uranium weapons.
Thirdly, when selecting the external fund managers that we typically employ to manage our client’s assets, we embed an ESG assessment into our framework. There are two areas where the ESG aspects of every fund is explicitly scored. These are within the investment philosophy and within the investment performance / positioning. The former considers how the fund manager works ESG considerations into their investment process, idea generation and risk controls – the ‘input’ if you like. The latter consider how this is actually reflected in the portfolio holdings; does it tally with what we would expect philosophically – the ‘output’ if you like.
Finally, we recognise the importance of voting and engaging directly with the underlying companies that we hold. Just a handful of such reasons include ensuring that company management understands shareholders’ desires, that risks are lessened and that change is effected where necessary. Just as we delegate the selection of these companies to external managers primarily, so we will delegate the voting and engagement to an external firm. We have already chosen that provider and so we will shortly have many of world’s leading specialists both investing our client’s assets and voting and engaging on them.
Investing with impact
While it’s good to know that Barclays is taking its 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 1bn 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 such funds recently in the industry, yet we launched just such a fund over 2 ½ years ago. Called the Multi-Impact Growth fund, it’s an award winning ‘one-stop shop’ blend of leading equity 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 including asset allocation and manager selection and successfully applies them to the impact space.
Things to consider
The value of investments can fall as well as rise. You may get back less than what you originally invested.
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