- Social impact investing generally aims to generate social and environmental impact along with economic returns.
- Many of the funds available seek to gain this exposure through publicly traded stocks.
- Many are relatively new launches, so it’s difficult to assess what difference they make and possibly benefit.
If you want to not only generate profits but also create positive change, one area to consider could be social impact investing. This has received less attention than environmental, social, and governance (ESG) investing. Social impact investing is defined by the Global Impact Investing Network, a non-profit organization dedicated to increasing the scale and effectiveness of impact investing, as “providing positive, measurable social and environmental benefits alongside economic returns.” It is described as an investment made with the purpose of creating an impact. ”.
British social investment bank Big Society Capital says: “Social impact is an investment approach that aims to address social issues and generate positive social impact alongside economic returns.” It involves investing directly or indirectly in organizations and projects with a social mission or focus, with the goal of creating positive change. ”
Social impact investing tends to focus on areas such as human rights, modern slavery, employee relations such as working conditions and trade union rights. For example, Big Society Capital’s investments aimed at promoting financial inclusion include helping workers avoid debt by allowing them to use a portion of the wages they have already earned when they need it most. Includes an app, Wagestream. And her one of Big Society Capital’s social and affordable housing investments will provide specialist domestic violence support, childcare provision and access to safe and affordable housing. Haru Women’s Network.
As well as supporting social causes, “a focused social impact fund with a clearly defined social objective, such as the provision of high-quality, affordable housing, can be a valuable diversifier for many portfolios. “This could happen,” said John Ditchfield, director of research firm Impact Lens. “However, investors should tread carefully given the potential for exposure to illiquid or complex markets.”
However, while impact investing has historically been carried out through private direct investment, most of the impact funds available to retail investors in the UK invest in listed companies that have been selected on the basis of their impact. There is a tendency to
difficult to quantify
There is no set way to quantify how much change social impact funds and their investments are making. Benchmarking and performance data on social impact investing is limited, which can make it difficult to compare financial performance and positive impact results. And this field is fairly new, with many of the funds available to individual investors having been established within the past 10 years.
“It’s too early to draw any firm conclusions on this,” said James Yardley, senior research analyst at Chelsea Financial Services. However, “Good Impact Funds provide investors with clear information and reporting on their impact.”
Mr Ditchfield added: ‘High-quality impact funding is based on widely recognized standards, such as the United Nations’ 17 Sustainable Development Goals, which include eradicating poverty and hunger and ensuring education for all. “Impact funds often publish impact reports that explain how they measure and track impact.”
The fund’s relative newness also means that it does not have a long track record, and while it aims for positive returns, “the complexity of managing this type of fund means that the may be below market levels,” Ditchfield warned.
Many impact funds that invest in publicly traded stocks “tend to have a small-cap growth bias, which can be risky,” Yardley added. “They are ideal for investors with a long-term horizon, who particularly want their investments to yield positive results, and who have a very high risk tolerance.”
However, small, privately held companies can achieve strong growth over the long term, so a small allocation to this area can benefit portfolios that achieve this goal.
Fund for exposure to social impact investing
The Investment Association (IA) sector includes around 17 open-end funds with the word ‘impact’ in their name. Yardley argues that in reality the choice of funds available is not wide enough, and some are very small and small.
“Funds like the following” Artemis’ positive future (GB00BMVH5979) and LF Montanaro Better World (GB00BJRCFP12) [which had assets of £25.3mn and £108.4mn, respectively, at the end of June] “We have struggled with headwinds over the past few years, but if the winds shift and small-cap growth returns strong, we could be in a good position,” he says. “Overall, impact funds have struggled recently as small-cap growth styles have fallen out of favor amid higher inflation and interest rates.Social impact funds can perform very differently from the market. They typically take a lot of stylistic risks and skew toward smaller companies.”
but, M&G Positive Impact (GB00BG886B02)) has outperformed the IA Global category since its establishment in November 2018.The fund focuses on large companies, accounting for about 70% of its assets at the end of June, with its largest holdings including insulin manufacturers. Novo Nordisk (DK:NOVO B), ON Semiconductor (USA:ON) and indian HDFC Bank (IN:HDFCBANK).
For non-equity exposures, options include: CT UK Social Bond (GB00BF233790) This is intended to provide income as your investment grows over five years. It primarily invests in bonds that support and finance socially beneficial activities and development in the UK. It focuses on eight social outcome areas including housing and real estate, community services, and financial inclusion. Issuers of the bonds invested in include the UK Government, the International Finance Facility for Immunization; NatWest (NWG) and utility companies.
Schroeder BSC Social Impact Trust (SBSI)The project, which was launched in 2020, will likely get closer to the impact its investments were originally involved in by investing in other funds that fund local social groups in the UK, as well as direct co-investments. Its main asset exposure is social enterprise debt, including charity bonds and co-investments in social enterprise loan portfolios. A high-impact housing fund that supports people experiencing homelessness, domestic violence, or low incomes. Social Performance Contracts, which provide capital to charities and social enterprises to enable them to deliver on government contracts.
Due to its private equity and illiquid investment exposure, the Schroders BSC Social Impact Trust is riskier than funds that invest in publicly traded stocks. However, the trust’s chair, Susanna Nicklin, said the trust’s “portfolio provides essential government-mandated services and derives a significant portion of its income from government-supported sources, so the trust is able to respond to difficult economic conditions.” It claims to be exposed to investments with “proven resilience.” It has historically been stable throughout business cycles. ”
Fund performance (cumulative total return) |
Fund/Benchmark | 3 minutes(%) | 6 million (%) | 1 year (%) | 3 years (%) | 5 years (%) |
Artemis’ positive future | -1.31 | -2.42 | -2.53 | ||
LF Montanaro Better World | 1.04 | -0.32 | -2.28 | 6.15 | 33.14 |
M&G’s positive impact | 1.39 | 1.07 | 5.55 | 22.76 | |
MSCI World Index | 4.96 | 6.91 | 9.49 | 38.50 | 57.51 |
MSCI World Small Cap Index | 3.67 | -0.35 | 4.45 | 34.38 | 30.42 |
IA World sector average | 3.57 | 3.99 | 7.12 | 26.46 | 42.41 |
CT UK Social Bond | -0.63 | -1.13 | -3.32 | -9.47 | -2.30 |
IA GBP Corporate Bond Sector Average | -0.82 | -2.20 | -4.81 | -13.37 | -2.22 |
ICE BofA 1 10 Year Sterling Non-Gilt Index | -0.76 | -1.49 | -4.15 | -9.44 | -1.94 |
Schroders BSC Social Impact Trust Stock Price | 1.07 | 3.28 | -9.22 | ||
Numis Small Company Index Excluding Investment Companies | 2.04 | -1.22 | 4.11 | 33.06 | 7.99 |
Source: FE Analytics, 24.07.23 |