You don't need to be a millionaire for impact investing
You may think of super-rich crusaders like Bill and Melinda Gates as the ultimate impact investors.
They have injected billions of dollars into global causes in recent decades, saving lives, solving problems and fighting humanitarian crises.
Certainly, they are among the most active on the planet when it comes to spending on the greater good.
But having astronomical wealth is not obligatory if you want to help change the world through investment.
Philanthropy on an international scale is one thing – and who wouldn’t want a near-bottomless pit of finance like the Gates family to share with the disadvantaged?
A distinctly different vehicle for change, however, is impact investing – in which people on almost any budget can get involved.
Impact investments are those made with the intention of delivering a positive social or environmental impact, as well as a financial return.
Rather than simply giving funds to charity, they enable investors to help causes that matter to them, while also growing or strengthening their portfolio.
A well-established model for impact investing sees a socially-minded angel investor inject capital into a startup with impactful goals.
In the UK, the angel’s investment may qualify for tax breaks under the Social Investment Tax Relief (SITR) scheme. Investors making an eligible investment can deduct 30% of the cost of their investment from their income tax liability, either for the tax year in which the investment is made or the previous tax year.
Qualifying organisations must have a defined and regulated social purpose. They must also have fewer than 500 employees and gross assets of no more than £15m. Individuals can invest up to £1m per year in social enterprises to receive the tax break.
Environmentally focused enterprises, meanwhile, are increasingly well represented among the army of startups seeking investment.
Worldwide issues like plastic waste, global warming and food sustainability are being challenged by growing numbers of bright new businesses. For investors, they represent an opportunity deliver a positive impact alongside potentially strong returns. While SITR may not be applicable, other tax breaks could be – including those delivered through the Enterprise Investment Scheme (EIS) and Seed EIS, both of which offer healthy income tax breaks
If an investment of five, six or seven figures in such businesses is beyond your personal wealth, however, you could take advantage of crowdfunding.
Following the explosion of crowdfunding platforms in recent years, there are lots of opportunities to invest small amounts into impact startups (whilst in many instances also taking advantages of generous tax reliefs).
While some platforms which are purely focused on impact investments exist, you may find enterprises pursuing causes you care about on more established, mainstream platforms.
Minimum investment thresholds often start as low as £100, meaning you can buy a small stake first and possibly progress to bigger investments as your confidence grows.
Another route to impact investing, albeit with a higher financial barrier to entry than crowdfunding, is the managed fund.
These are overseen by an asset manager and usually targeted at a specific type of organisation – in this case those with social or environmental aims.
In 2016, for example, UBS launched an oncology impact fund to support the development of new cancer treatments, while enabling investors to benefit from growing demand for such treatments. It raised US$47m from investors and last year donated US$2.5m to cancer research projects.
You do not need elite-level riches to invest in this type of vehicle, nor the time commitment to find individual investment opportunities.
And there is a growing number of such vehicles. According to the Global Impact Investing Network (GIIN), a non-profit organisation that promotes impact investing, the number of social investment funds has quadrupled over the past 20 years to 200.
But if you can’t find the right fund for you, and if you are well versed in stock market trading, you could choose to buy shares in publicly-trading businesses with good intentions.
Among the many listed market members, you may find a compelling renewable energy or sustainability-focused proposition, for example.
Another way to boost your impact as an investor is through your approach to retirement fund saving.
The last decade has brought major changes to UK pensions legislation which have given savers more control than ever over their savings. These changes include giving savers the ability to withdraw their entire funds – or a tax-free lump sum – from age 55. We have also seen the gradual introduction of auto-enrolment, which puts the onus on employers to offer a pension scheme to employees and to contribute to it.
Such reforms, and the national push to improve personal finance literacy, have increased people’s engagement in pension saving. In a recently-liberated pensions market, savers are also more aware of their options.
Amid these sweeping changes, an emerging trend is that of UK pension funds making impact investments. Last year a government-appointed advisory body concluded that The Pensions Regulator (TPR), pension scheme trustees and the wider financial services industry should all work to develop social impact investing in the UK.
The government responded, announcing its intentions to change regulation that would make it easier for pension funds to invest “with an environmental and social impact”, trade publication IPE reported.
Then, in September, new rules were announced for introduction later this year that will increase the pressure on pension fund managers to focus on their environmental, social and governance-related (ESG) impact. From October, pension schemes will be mandated to disclose any apparent ESG risks.
Pensions, then, could increasingly become a vehicle for impact investing in the future, in addition to the many other routes into this growing field.
A challenge for impact investments going forward is how to truly measure their positive impact on the world.
Last month, U2 frontman Bono recently announced the launch of Y Analytics, with private equity firm TPS, to solve this very problem.
Providing a clear picture of how much good a fund or enterprise achieves is hard and, if greater clarity was available in future, impact investment opportunities would become even more attractive - to everyone, not just the super-rich.