Understanding CSR, impact investing and social enterprises

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How to benefit from CSR

Understanding CSR, impact investing and social enterprises

As corporate social responsibility and environmental, social and governance strategies become more mainstream, so too do the range of investible funds for investors who want to put their money where their morals are.

Jennifer Walmsley, partner at consultancy Arkadiko Partners, explains that CSR is "often used as a catch-all term to encompass environmental as well as social initiatives".

However, increasingly investors expect to see "evidence" that companies are integrating CSR efforts throughout their business and seeing this as part of their strategy, not an optional extra or philanthropic activity.

Ms Walmsley adds: "Investors expect to see evidence of this as well as reporting that gives them confidence that companies are managing all the risks that might impact their strategy proactively."

That said, there is such a range of different types of corporate social responsibility (CSR) policies, as well as funds purporting to follow CSR or environmental, social and governance (ESG) strategies, that choosing the right one can be complicated for the average investor.

As Thierry Bogaty, head of SRI expertise at Amundi, comments: "Analysis of CSR practices can be implemented in any kind of businesses and companies. ESG considerations can be taken on a very wide investment universe."

This is why Amundi’s ESG analysis covers more than 5,500 issuers worldwide.

According to HSBC Global Asset Management, there are many flavours of ESG investing to choose from - so there should be something that appeals to most investors within the spectrum, as Figure 1 outlines:

Source: HSBC Global Asset Management

Add to this the rise of impact funds and social enterprises, which are gaining popularity among not just wealthy philanthropists but also millennials - thanks in part to crowdfunding sites raising awareness of social enterprises - and it becomes clear that advisers have a big role to play in guiding clients down the right path.

Impact funds

Impact bonds have been gaining traction over the past decade, and have proved to be interesting products for investors looking for a specific return on their investment while also making a positive contribution to society.

The Global Sustainable Investment Alliance defines impact investing as targeted investments, typically made in private markets, aimed at solving social or environmental problems.

According to Stephanie Maier, director, responsible investment, for HSBC Global Asset Management: "While companies are increasingly considering and articulating their business purpose, this approach focuses on investing in businesses with a clear social or environmental purpose.

"This provides an opportunity for companies that are going beyond good management of environmental, social and governance factors and specifically delivering positive environmental or social outcomes."

Some impact investment-led businesses have become significant success stories, such as Elon Musk’s Tesla corporation or ethical spectacle maker Warby Parker in the US. But America does not have the monopoly on impact investment.