Investing to make a difference: Driving social change through investment
By Rebekah Swan, AMP Capital ESG Investment Specialist, NZ | Client Advocate | Head of Product – AMP Capital
A growing field of investment which is capturing the attention of mainstream investors is impact investing. In the past, responsible or ethical investing focused on avoiding investments that have a negative impact on society or our environment. Impact investing goes a step further by investing into organisations, projects or funds with the intention of generating measurable social and environmental outcomes, in addition to a financial return.
In simple terms, impact investing is putting your money to work in a way that helps to achieve positive benefits for society. For many years, philanthropy and investing have been thought of as separate disciplines – one championing social change, the other financial gain.
The idea that the two approaches could be integrated – in essence, delivering a financial return while doing good – is a relatively new concept. The continuum of responsible and ethical investing developed by the Responsible Investment Association Australasia helps put the different types of investing into context.
Traditional investments, with limited or no regard for environmental, social and governance (ESG) factors, sit at one end, and at the other end is philanthropy which targets positive social and environmental impact with no financial return.
RIAA’s responsible and ethical investment spectrum Source: Responsible Investment Association Australasia
Impact investing sits at the philanthropic end of the spectrum but is different from philanthropy because a financial return is expected. It’s different from mainstream finance because measurable social and environmental benefits are sought. The intention to generate a ‘positive’ social or environmental impact also distinguishes the practice from the ‘negative screening’ used in socially responsible investing.
Impact investing came about in response to a growing awareness that the challenges facing society are too large and complex to be solved by governments, philanthropy and not-for-profit organisations alone. Impact investment can play a key role in addressing these challenges.
How do impact investments perform financially relative to other investments?
Many investors assume that this type of investment means they will make a lower financial return, or that returns are ‘sacrificed’ in order to have impact. Other investors reject the trade-off between social impact and financial return and expect a market rate return while delivering the intended impact. Positive impact does not always mean lower returns, and in practice impact investing covers the spectrum – from below-market returns to market-beating performance.
For investors, impact investing provides greater choice and opportunities to put capital to use in ways that make a financial return and align with their values. It encompasses a diverse range of investment opportunities – for example, investment in community infrastructure, sustainable forestry, or clean technology – and a growing list of activities, including renewable energy, conservation, microfinance, and access to affordable housing and education.
Each has a different balance of risk, return and social impact, as well as investor expectations. Impact investing is here to stay and can be seen as a key driver for positive change. It challenges the long-held view that social and environmental issues should be addressed only by philanthropic donations, and that market investments should focus exclusively on achieving financial returns. It has particular appeal for younger generations, such as millennials, who want to give back to society, and is a trend which is set to grow as these investors gain more influence in the market.
AMP Capital ESG Investment Specialist NZ | Client Advocate | Head of Product – AMP Capital
Rebekah is a member of the AMP Capital New Zealand Strategy team, and Management Team and the Australia and New Zealand Client Leadership Team, a member of the Responsible Investment Committee, the Financial Markets Conduct Committee and is a Director of AMP Investment Management. She is also a member of the New Zealand Governance and the Sustainable Finance Forum Technical Working Group.