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Impact investing

Impact investing

The Global Impact Investing Network (GIIN) defines impact investing as, “…investments made with the intention of generating a positive, measurable social and environmental impact, alongside a financial return.”

Until recently, this investment approach was largely confined to private equity. However, in recent years, impact investing has evolved and expanded to include listed securities. This asset class offers investors an accessible way to generate a positive social and/or environmental impact alongside attractive and stable long-term financial returns. Indeed, the scope of listed equities is huge, and an impact investment approach which also encompasses active, engaged ownership, has excellent potential to create positive change.

Making a positive impact in listed equities

As part of our continued commitment to sustainable wealth management for our clients, UBP has expanded its responsible investment expertise into impact investing. We are firmly of the view that the financial sector has an essential role to play in creating a sustainable economy.

Impact investing’s accessibility is key if we are to make a meaningful difference, and every investor deserves to be able to align their financial and ethical goals. Capital markets and listed equities have the potential to be huge engines of positive change, as they can boost the accessibility of impact investing to the general investing public.

The ever-increasing pressure to find innovative solutions and technologies which can allow humans and the planet to live in harmony is translating into strong investment inflows for the enablers of these goals. Identifying and supporting these companies is a key tenet of impact investing, as they should be best placed to grow faster and more profitably in the long term than the broader investment universe.

Increasingly, the United Nations’ 17 Sustainable Development Goals (SDGs) are being used as a roadmap for impact investing.

Impact measurement is key

A cornerstone of impact investing is the measurement of non-financial performance, i.e. the impact an investment has alongside financial returns. This allows the end investor to have a much more complete picture of the performance of their holdings.

Key features of impact investing

  • Generates financial returns: impact investing is not philanthropy
  • Generates social and environmental performance
  • Uses the UN’s 17 Sustainable Development Goals as a roadmap
  • Primary investment focus is on the products/services offered by a company, not how it is run
  • Measures the social and environmental impact alongside financial performance
  • Innovation typically plays a leading role in the underlying investments
  • Long-term horizon
  • Active ownership/engagement

Investment philosophy and process

The best impact investment companies in the listed equity space are innovative and often disruptive businesses. To select the best candidates, UBP has developed its own methodology. This proprietary scoring system sits at the heart of the investment process, enabling our impact investment experts to assess the “impact intensity” of the companies under review.

Our IMAP process comprises four pillars:

  • Intentionality: the impact candidates should demonstrate a clear direction of travel in their business models.
  • Materiality: what percentage of their revenues is derived from areas generating a positive impact?
  • Additionality: refers to the uniqueness of a business; are there patents, complex technologies, market dominance?
  • Potential: is the product or service a game changer, i.e. could it have a meaningful impact on the world?

The role of engagement

Impact investing is relatively new in the listed space. Engagement with companies is the most effective way to gain clarity on the true “intentionality” of a business. A constructive and honest relationship with a company’s management also provides the necessary encouragement and support for the company to deepen and broaden its measurement and disclosure of non-financial KPIs which are relevant to the investor. Engagement is embedded in every stage of the investment process, from the initial investigation of a company to the impact assessment.

Head of Impact Investing

Victoria Leggett

Head of Responsible Investment for Asset Management. Victoria joined UBP in 2010 as a portfolio manager and has 15 years of investment experience. She previously worked as a European Equity Analyst at Threadneedle having started her career in Corporate Finance.

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