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What impact can you really have as a private investor?
Impact investing has gone mainstream and is attracting interest – and money – from investors all over the world.
Banks, foundations and wealthy individuals are looking for companies and projects to invest in that will make a real, positive social difference to society and to our world.
The UN now has the United Nations Social Impact Fund (UNDP-UNSIF), which brings together venture philanthropists, family trusts, foundations, corporations, governments and private sector investors to create a sustainable development goal (SDG) ‘blended financing’ platform – balancing both social and economic returns.
The United Nations Social Impact Fund is about to launch its own US$200m fund which will invest in food and agriculture, cities and urban areas, energy and materials, and health and well-being.
However, as impact investing is attracting large financial support, it could easily be deterring the small, everyday investor. Bill and Melinda Gates may be able to battle disease, improve health care, stimulate inclusive economic growth and improve education for the disadvantaged and vulnerable all over the world - but their foundation has US$50bn at its disposal.
If you have just £1,000 to invest, how can you hope to make a difference?
The fact is that you can.
For one thing, you can be part of a growing army of small investors who are choosing to put their money where their concerns are. Together, they can make a real difference. Research by ethical bank Triodos reveals that the UK socially responsible investing (SRI) market now accounts for £16bn in assets under management.
Triodos’ research also shows a majority of investors in the UK favour a fairer and more sustainable society. However, two-thirds of them have never been offered ethical funds, despite the fact two-thirds of investors would like to support companies that make a positive contribution to society and the environment.
But importantly, it’s not just that you can make an impact by being one of thousands of smaller investors. With many investment projects your £1,000 could make an appreciable difference in itself.
There are hundreds of highly innovative businesses starting up every year which are seeking early stage funding. At the time of writing, there are businesses seeking funding in areas such as health research, clean energy, education and training and for activities ranging from ethically sourced meat to eco-friendly dry-cleaning.
Often seeking to raise sums ranging from £50,000 to £500,000, for these businesses, your investment could help to make a critical difference and, if they go on to succeed and fulfil their ambitions of making a real social impact, your investment will have played a significant role in that.
And not only that, but by having invested at an early stage, you’ll have a significant stake in a successful business.
What's more, impact investments do not have to be limited to a narrow range of obviously philanthropic or green projects. An impact investment can be in any business or project which makes a positive difference to lives and society.
Generally, when people talk about ethical investing or impact investing, they refer to ESG as qualifying criteria. With ESG standing for environmental, social and governance, the World Bank says:
“ESG investing is increasingly becoming part of the mainstream investment process for fixed income investors, as opposed to a specialist, segregated activity, often confined to green bonds.’’
“[ESG factors]…might include how corporations respond to climate change, how good they are with water management, how effective their health and safety policies are in the protection against accidents, how they manage their supply chains, how they treat their workers and whether they have a corporate culture that builds trust and fosters innovation.’’
This enormously widens the scope for you to be able to make a difference with your investment.
In the UK, for example, it’s well known that we currently face a housing crisis. It’s estimated that 300,000 new homes are required to be built every year, but only 178,000 were completed in 2016/17. This has become a major economic, social and political issue.
Historically, small independent house builders supplied a significant proportion of the UK’s residential housing. However, the financial crisis and subsequent credit crunch and tighter regulatory environment for banks starved them of funds and it’s estimated that more than half withdrew from the market. These smaller independent builders supplied just under 20,000 homes in 2013, compared with an annual figure of almost 51,000 a decade earlier.
The government has recognised that SME builders have a vital role to play in resolving this housing crisis and it’s encouraging them to re-enter the market. These independent builders know their own areas and are best placed to make judgements on the balance between supply and demand in their areas. Most importantly, they’re the people who can make informed judgements on what kind of housing is needed and where.
But, they still struggle to raise finance from the banks. Fortunately, online platforms can allow the smaller investor to invest as little as £1,000 to buy shares in a Special Purpose Vehicle (SPV), set up by a joint venture of builders and developers to only fund a specific development.
By investing in property development in this way, the investor can make an impact by addressing the housing shortage, provide much needed new homes, help breathe life back into local areas and revive local economies, help improve labour mobility and provide jobs and training. Not only that, by supporting independent builders back into the market, the investment makes it more likely that they will go on to launch further developments and there will be a multiplier effect.
The investment will also be helping to stimulate and support an industry that has a greater impact on the UK economy than perhaps any other. In its recent report: The Economic Footprint of Housebuilding in England and Wales, Lichfields points out that last year some £12bn was invested in the housebuilding industry in England and Wales. Of this, £11.7bn was spent on suppliers, of which 90% was spent in the UK.
The sector generates £38bn of economic output each year, supporting nearly 698,000 jobs and, among these are 4,300 apprentices, 525 graduates and 2,900 other trainees. It paid £2.7bn in various taxes, created £4.2bn of affordable housing and spent £841m on infrastructure, including £122m on new and improved schools.
That all amounts to quite an impact.
Just one example of where an investment can help a business and an industry to contribute to making an enormous difference to society, as private investors, it's a perfect example of how hundreds of thousands - or millions - of pounds aren't needed from one source to make an impact.
Of course, large funds play a critical role in many investment opportunities, but it's important to not be deterred as a private investor with smaller sums. With the right investment into the right opportunity, your money could go a long way to make a genuine impact.