The impact investing wave hasn’t hit Britain - yet.
The nature of capitalism is gradually changing across the world. In recent years, wealthy investors have tried to look beyond the basic fundamentals of their investments to uncover the true social impact of their decisions. Making a conscious effort to divest from certain companies and invest in others based on personal beliefs and values has become a multi-billion dollar global trend known as ‘impact investing’.
According to the Global Impact Investing Network (GIIN) annual survey (May 17th 2017), investors have deployed $228 billion in assets to social impact ventures. These ventures include alternative energy projects, affordable housing loans, water treatment solutions, waste management services, wildlife conservation, and early education. With 32% annual growth, Southeast Asia is the fastest growing market for such investments. However, the UK domestic market remains largely untapped.
An industry review (Advisory Group appointed by HM Government, GROWING A CULTURE OF SOCIAL IMPACT INVESTING IN THE UK, 2016) revealed that 56% of survey respondents have considered making social impact investments, but only 9% have actually done it. The report says industry leaders need to do more to improve accessibility to social investment vehicles. It recommends increasing the number of products offered in this sector. The overall UK market is estimated to be worth £150bn and is primarily comprised of green energy bonds, renewable energy infrastructure, social housing, and social impact businesses.
Investors seem to have recently recognized the fact that these investments are not money-losing bets or misguided attempts to signal virtues. Instead, many of them offer attractive returns and significant cash flows. With the rise of exchange traded funds (ETFs) backed by environmental or social goals (ESGs), making such an impact investment is easier than ever. 2018 was a record year for these ETFs, with eight new ones being launched in May alone. There are now a total of 31 ‘ethical ETFs’ with little over £3.9bn in assets under management (Kate Beioley, Financial Times, MAY 24, 2018).
Industry insiders believe the government needs to step up and support these initiatives to encourage more investments (Sarah Gordon, business, Financial Times, NOVEMBER 14, 2017). By co-investing alongside private investors, offering tax incentives, and relaxing certain regulations, the British government can accelerate growth in social impact investing across the country.
The government has already tried to make a similar move in the past. In 2012, it set up Big Society Capital, an independent investment institution, to invest money from dormant bank accounts into social ventures. The government has also expanded the reach of the social investment tax relief (SITR) to encourage big ticket investments in social impact ventures.
With better products, growing awareness, and government support, ordinary investors can finally participate in an asset class that can deliver not just an enormous social benefit but also a justified return on investment.
The value of investments and income from them may go down as well as up and you may not get back the original amount invested.