Does impact investing mean sacrificing returns?
The most common question we get is: “By investing in things like climate change and gender equality, am I giving up potential returns on my money?”.
It’s a good question, and it has a straightforward answer: no.
Let us explain.
All our investments aim to do two things:
1. To earn financial returns
2. To have a positive impact on the planet and its people
This dual purpose style of investing is known as Impact Investing: investing for positive social and environmental impact, without giving up any returns.
Impact investing is not charity. It’s cold, hard, returns-based investing, just with an additional layer. The additional layer is positive social and environmental impact, and this in no way subtracts from the return-seeking goals of investing.
So how do we know for sure? Well, evidence.
The overwhelming evidence for this kind of investing shows that it doesn’t have a negative impact on returns. In fact, it could have a positive impact on returns and at the same time, reduce risk.
How? This is probably best explained with an example or two.
If we take our Gender Equality theme as an example. The theme is full of companies that promote women in the workplace, have gender-balanced leadership teams, and as a consequence, are soundly run. Guess what? Companies that promote this way of operating have been shown to perform better than companies that do not. It makes sense really.
Another example. MSCI found that investing in companies promoting sustainability, the environment and their own governance (basically how they run themselves) can be less risky vs. companies that don’t. Again, this makes sense, because those companies are positioning themselves for the future, updating their business models and what they sell, and taking care of their employees and customers. We’ve included their reports at the bottom of the blog if you want to read more.
At tickr, we are all about earning money and doing good. Not just earning some money whilst giving some up. That’s why it’s like investing, only better.