It is the question that has long troubled investors: can you do good and achieve good returns at the same time? As a growing body of evidence points to the fact that sustainable funds can outperform their peers, impact investing is seeing an unprecedented boom. Investors are unleashing the power of capital to have a positive impact on the world.
In the UK it is estimated to be worth some £15bn, and our latest Triodos Bank Annual Impact Investing survey suggests that we are on the cusp of accelerated growth over the next decade. With a forecast increase of 173 per cent, our analysis predicts that the market is set to be worth £48bn by 2027. These are some impressive figures, but what’s behind this acceleration?
The research points to both appetite for more ethical investment opportunities among existing investors, and the rise of a new generation of socially conscious millennial investors. A fifth of UK investors say they are planning to invest in a socially responsible investment (SRI) fund in the coming years, rising to 47 per cent among investors aged 18-34.
Demographic changes, social media and awareness of the challenges facing our planet mean that investors are waking up to the fact that there really is no such thing as a neutral investment. Every investment has an impact on individuals, society and the economy.
The research also pointed to a new trend of ‘resist investing’, particularly among younger investors. A third of investors are motivated to invest in an ethical fund because of negative events in the news, rising to 56 per cent of investors aged 18-34. This age group cites climate change-related disasters; the 2008 financial crisis; and the fossil fuel divestment movement as their biggest stimuli.
While the increasing popularity of impact investing is welcome news, we must be careful that it isn’t just labelled as sustainable investment on the surface. Otherwise it might come down to just doing things slightly less badly. A best-in-class investment in the tobacco or arms sector is not going to help make our society more sustainable. Investors are craving more knowledge of what they are investing in and how their money is being used, so transparency is key. We encourage all investors to seek out funds that are not only best-in-class, but that apply strict sustainability criteria.
Crowdfunding platforms are another option, and here people can see directly where their money is going. More options are appearing in this space, with a specific focus on ethical and positive impact projects and organisations.
There is a real opportunity for investors to seize the power of money for positive change. Now is the time for the sector to step up to the plate and ensure that these opportunities are genuine, measurable and thoughtful.
Bevis Watts is managing director of Triodos Bank UK