We've talked a lot about impact investing over the past few months in particular, discussing everything from exactly what it is through to how you can invest in startups whilst having a focus on making an impact.
With there a considerable amount of data and information out there on impact investing, we wanted to compile some of the most interesting facts about the industry into one easy-to-read post - enjoy!
1. It's no longer a small, niche area of investing
The whole focus of investing to make an impact is going mainstream. With companies from SME to corporations getting involved - even the United Nations are on board - the serious investor needs to be aware of what it is and why it’s growing in importance.
2. Over half of people surveyed in the UK are interested in impact investing
A recent survey of 1,800 individuals in the UK revealed that 56% had at least a moderate interest in impact investing. People like the idea that their money isn’t only making a decent return but that – at the same time – it’s also making a difference.
This shouldn’t be surprising. It’s natural that people want to help other people and make their world a better place, particularly if it can be done at no cost to themselves.
3. You can be an impact investor in more ways than ever before
It’s increasingly being realised that impact investments don’t have to be limited to economic and commercial activities where the social benefit is self-evident and direct.
A recent article Mark Haefele of UBS argues for a wider definition of impact investing. Impact investments can also be in activities which don’t have the typical humanitarian connotations but in which the long term positive social impact can still be enormous.
These might be in activities which provide employment and skills, boost the local economy and address an acute social need, such as building much needed homes, or it could be a company which aims to bring radical change to a traditional industry for the benefit of the economy and the consumer, such as one of the new challenger banks.
4. Millennials are driving forward the growth of impact investing
A major report published earlier this year by the Resolution Foundation found that last century’s trend, which saw successive generations enjoying higher standards of living than their parents, has gone into reverse.
Among the countries featured in the report, millennials in their early 30s on average have household incomes 4% lower than members of Generation X (the generation between the baby boomers and the millennials) at the same age, whereas the incomes of Generation X in their early 30s were 30% higher than the baby boomer generation before them. This has made millennials more critical of, and cynical about, traditional investments.
But, at the same time, they also have powerful role models in other millennials who’ve embraced capitalism and made themselves wealthy, but apparently without compromising their ideals. Obvious examples are Facebook’s Mark Zuckerberg, Sergey Brin of Google and Reddit’s Alexis Ohanian.
5. 55% of impact investments produce market-competing returns
People are increasingly drawn to impact investments because they perform as well, if not better, than conventional investments.
A survey by the Global Impact Investing Network (GIIN) and JPMorgan found that 55% of impact investment opportunities result in competitive, market rate returns. Another study from Moneyfacts, which looked at the performance of ethical funds compared to their mainstream peers over four different time frames and in five different categories or sets of fund, found that ethical funds outperformed their mainstream peers in 13 out of 20 scenarios.
Over the past year, ethical funds have performed better than their traditional counterparts, posting an average growth of 16.8% compared with 15.2% from the average non-ethical fund. The average ethical fund (30.4%) has also eclipsed the average non-ethical fund (29.1%) over three years, but it’s over five years that ethical funds have really performed well, with the average ethical fund returning 76.1%, compared to an average non-ethical fund return of 64.1%.
“With every passing year, the traditional view that investing ethically entails sacrificing profits looks increasingly outdated,” said Richard Eagling, head of pensions and investments at moneyfacts.co.uk. “In our latest survey, ethical funds have more than held their own.”
6. You can reduce your tax liabilities whilst making a difference
For UK investors there are also often tax advantages to impact investments. It’s government policy to encourage businesses with innovative, disruptive technologies and know-how, and these are often those businesses which have the greatest positive social impact. It does this primarily through EIS, or the Enterprise Investment Scheme.
This was introduced to provide significant tax incentives for those investing in smaller, high risk, unlisted companies. The tax relief stands at 30% of the cost of the shares, to be set against the individual’s income tax liability for the tax year in which the investment was made and this relief can be claimed up to a maximum of £1m invested in qualifying shares (higher for investments into 'knowledge intensive' companies).
There’s also a ‘carry back’ facility which allows all or part of the cost of shares bought in one tax year to be treated as though they had been acquired in the year before. A further benefit is that you don’t have to pay capital gains tax on profits from investing in EIS-eligible companies. This is offered in addition to your annual tax-free capital gains allowance across all investments.
You’re also entitled to defer CGT by investing in an EIS-eligible company, irrespective of the source of your capital gain. Also, loss relief is available should your investment in an EIS-eligible company be sold for less than you paid for it.
7. UK green and ethical retail fund investment doubled in October 2017 to over £16 billion
According to research by the EIRIS foundation, in 2007, investment in UK green and ethical retail funds totalled around £8.9bn. 10 years later in this figure had close to doubled to an estimated figure of just over £16bn.
This would seem to be borne out by research by ethical bank Triodos, which also shows the UK socially responsible investing (SRI) market now accounts for £16bn in assets under management.
8. By 2020, the impact investment market is anticipated to be worth over one trillion USD
A report by the leading investment bank JP Morgan forecasts that impact investments will be worth US$1trn in about two and a half years. Last summer, for example, insurance giant Swiss Re announced it was moving its entire US$130bn investment portfolio to new, ethically-based benchmark indices.
9. Over two-thirds of UK investors want to support impact-driven companies
There is a lot of pent up demand out there for impact investments. According to research by Triodos bank, the majority of UK investors want to see a fairer and more sustainable society, yet two-thirds have never been offered ethical funds - despite the fact that 64% of investors would like to support companies that make a positive contribution to society and the environment.
10. The UK government are fully behind impact investing
According to the same Tridos bank research, most investors believe that businesses rather than the governments have the power to solve many of the biggest challenges facing the world today. Nearly three-quarters say companies can create positive social and environmental change, while 50% believe the state seems powerless to change society for the better.
A UK government sponsored report, 'Growing a Culture of Social Impact Investing in the UK', outlines key recommendations to help grow the number of social impact investors across the country and ensure financial providers help people support the issues they care about through their savings and investment choices. It urges the government and industry to support co-investment and increase the number of social impact investment opportunities; strengthen competence and confidence within the financial services sector and make it easier for people to invest.
The report has been welcomed by Tracey Crouch, Minister for Sport and Civil Society, and Stephen Barclay, Economic Secretary to the Treasury. Crouch said:
These recommendations are an important first step and I look forward to working closely with the industry to bringing social impact investment into the mainstream.
Interested in making an impact with your investments?
The ability to make a difference whilst seeing a financial return is increasingly appealing to many investors. The opportunities are vast and the entry routes are increasing, making it easier than ever before to become an impact investor.
With our guide to impact investing a useful read for investors looking to add more impact-driven investments to their portfolio, now really is a brilliant time to get involved in the rapidly expanding market of impact investing.