The official definition of impact investing provided by the Global Impact Investing Network (GIIN), is “investment that is made into companies, organisations, and funds with the intention to generate social and environmental impact alongside a financial return.”
An impact investment should be an investment, as opposed to a grant, but it is this explicit ‘intentionality’ to use investment to generate positive outcomes in the real world which sets it apart.
The second key part of the GIIN’s definition is a commitment from impact investors to measure and report the social and/or environmental impact created.
Historically, impact investing has generally been in private equity and illiquid investments in sectors such as microfinance, health and education.
It is a growing area for both pension funds, private banks and wealth managers, but has not been readily available for individual, retail and private client investors because of the level of specialisation.
However, the concept of investing to create positive outcomes is steadily growing in popularity.
For individuals and their advisers who want to make sustainable and impactful investments, there are now more fund products available that are designed to provide a positive outcome and a competitive financial return.
This opens up new opportunities for advisers to understand their clients’ motivations and interests.
Knowing that their adviser is shaping their portfolios to deliver financial returns alongside positive environmental and social impacts, can help build stronger and longer lasting relationships.
Recent developments
Over the past couple of years, impact investing has broken out from its origins in quasi-philanthropy, impact first (finance second), illiquid structures only really available to the very wealthy, and is now becoming more broadly applied across asset classes.
There is also a growing body of evidence showing that impact investing can result in competitive financial returns. This evidence is growing both in academic circles and from real world experience.
As a result, original impact investors have started to apply impact investment style thinking to a greater proportion of their portfolio.
Networks, such as the 100 per cent Impact Network, Toniic and The ImPact have emerged to share ideas and help family offices to develop portfolio strategies in this area, and investment consultants are also developing their ability to advise clients.
As the focus has grown on how to make impact investments in more liquid and widely available investment types such as equities and bonds, the notion of impact investing is becoming democratised and it now represents an accessible and realistic choice for the mass market of consumers and investors.
Using the fact find to ask about Impact
Through the Fact Find, advisers can ask their clients what it is that is motivating them to invest sustainably and make a difference.
Such questionnaires can now move beyond the traditional negative approach of providing a list of company activities an investor might wish to avoid.
The investment tools are becoming available for investors to consider how their money is working to create good outcomes, rather than just helping them to ‘do no harm’.
