Trend Analysis - 26 June 2019

Impact Investing: Keep up or keep out

Hawksfords’ Global Head of Private Client, Darren Kelland, has recently had his expertise in this topic sought out by the likes of The Wall Street Journal and Bloomberg. Most recently he has sat on panels with Cancer Research UK and been repeatedly quoted on his thoughts on what impact investing really is and where it is going. So, what is it that Darren is telling the industry?

Author of article:

Darren Kelland

Global Head of Private Client Services

A new generation is coming through, and they want to know where their money is going and what it is doing!

We see every day how much the world is changing, both economically, politically and socially. It’s continuously spoken about and reported on through the media – be better people, be more socially aware, understand your impact on the world. This might seem a far cry away from UHNW philanthropy, however it is quite the opposite.

Generation X is making a move away from pure ‘financial metrics’ and are much more focused on responsibility; the questions we are now being asked about where their money is going and what impact it is having are getting harder to answer. But we need to start taking this generation more seriously, they won’t be ‘kids’ forever. You only have to look at how Fund Managers and the Stock Exchange have started to issue sustainability indexes to know that this is something that isn’t going away.

 

Why does impact investment matter?

Well, it’s quite simple really, advisors and service providers either keep up or they will find themselves becoming redundant to UHNWs interested in ensuring their investments and philanthropic interests are meeting their objectives. The Global Impact Investors Network (GIIN) estimates from the latest annual survey that there is now $228 billion in impact investing assets which is roughly double that of last year.

Alongside impact investing, other similar ideas have evolved such as conscious capitalism, sustainable investment, and ethical investment. Socially responsible investment (SRI), which is a well-defined framework for choosing investments based on environmental, social and governance (ESG) criteria is not new to investors. The difference today is that impact investors are far more proactive in their intention for positive impact as opposed to merely avoiding the negative.

This is the key difference, it’s not just about not being seen to be aligned with an organisation that has a negative impact, it’s about being aligned with organisations that are actively pursuing and achieving a positive impact. If organisations want investment from UHNWs going forward, they are going to have to prove more than ROI. You will need to be able to prove that their money is going towards something, developing something, having an impact on something.

The risk of not ensuring that your organisation is ready for this? Well, it’s obvious isn’t it? You’ll find yourself out of the game.

A long-standing client recently came to us wanting to buy a new private jet, however his teenage daughter had said, “well, if you’re going to do that, what are you going to do to offset your carbon footprint?”. This question then got put to us and we needed to find a solution for the family. This is not a one-off incident, we are seeing this more and more from our clients and we are actively seeking to work with advisors that are working towards the same agenda and understand this shift.

 

How to give yourself a competitive advantage when it comes to impact investing.

If you had a windfall of £1 million, would you know how to invest it? Who would you ask to manage it to achieve the impact and the returns that you would want? One of the challenges of impact investing is the perception that there is a lack of opportunities that appeal to Gen X and this is having a knock on impact across investors, financial advisors and fund managers.

It is not good enough anymore just to have an ESG policy, you need to weave social consciousness into the fabric of your company. Building social consciousness directly into a business is becoming imperative to those who want to succeed. You need to clarify your objectives -- whether it’s by sustainably sourcing materials, taking action to reduce your carbon footprint or contributing to community initiatives -- and you have to figure out how to articulate these initiatives externally. My top tips to achieve this? It’s pretty simple:

  1. Know your audience and what matters to them.
  2. Choose your measure. What are you trying to accomplish and how will you measure and prove your efforts?
  3. Show your work! If you are achieving your goals, tell people about it. Write reports, press releases and communicate with your investors and target audience
  4. Lead by example, don’t follow the crowd. Where can you make a difference that makes you stand out against your competitors? If you can create something unique that appeals to your target audience, you will give yourself a key competitive advantage.

Finally, why are these issues important from an investment perspective?

Companies that adopt and implement ESG initiatives will be well run. That in turn translates into credibility with suppliers, customers and staff. Such focus on these issues will ensure that ESG Companies have a long term operational framework and the level of governance that results in profitability. Long term profitability is the nirvana for many private investors and ESG may just give them exactly what they are looking for. 

 

If you'd like to speak Darren then please contact him via email:

Darren Kelland

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