A word on Impact Investing
Impact investing is an investment approach that intentionally seeks to create both financial return and positive social or environmental impact that is actively measured.
But there is a challenge in meeting this request. How do we seek and invest in assets that achieve this balance?
I have clients that want to invest in a way that has an impact and have recommended several investment opportunities for clients that meet the criteria of impact investing. These include opportunities to co-invest with the Australian Clean Energy Finance Corporation or the opportunity to invest in a Social Impact Bond (SIB).
SIB align private and public funds to fund programs that address social problems. A return is paid on the program being successful. However, to participate in opportunities like this, you may need to be classified as a ‘sophisticated investor.’ A sophisticated investor has more than $2,500,000 in net wealth and/or earns over $250,000 per annum. Not every investor who wants to be an ‘impact investor’ meets this criteria.
So how can common investors (i.e. non-sophisticated investors) deliberately invest in assets that make a social impact?
Find existing listed companies that are meeting the criteria of impact investing
This is the most common way investors are currently trying to make a social impact. An investor can apply their own ‘filters’ to avoid assets that are involved with mining, minerals, gambling, tobacco and armaments. For some of my clients, this has meant not holding companies like Woolworths Limited who own ALH Group which is one of the largest poker machine operators in Australia.
They are including companies like Cochlear Limited who are a global leader in hearing implants or companies like Tesla Inc who are leading battery development technology and the manufacture of electric cars. Filtering through the stock market is a time consuming process. Secondly, research from the likes of Standard and Poors are showing that active share managers are under performing the general share market over three and five year periods.
Use ethical Exchange Traded Funds that meet the criteria of impact investing
Exchange Traded Funds provide a great way for investors to purchase a basket of companies in a particular sector or index. An ETF significantly reduces specific company exposure, are able to be traded on the securities exchange daily like an ordinary share, can be cheaper than managed funds and are very transparent to what the underlying holdings are. There are several ETF’s considered for our clients who wish to direct some of their assets towards an impact investing.
These ETFs include BetaShares Global Sustainability Leaders ETF (ASX Ticker Code: ETHI), iShares Global Healthcare ETF (ASX Ticker Code: IXJ) and iShares Global Clean Energy ETF (NASDAQ Ticker Code: ICLN). This Clean energy ETF is currently not available on the ASX but can be purchased on the NASDAQ with an international share broking account.
With some careful selection, it is possible for Australian investors to start directing their investment to assets that satisfy the impact investing criteria.
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