Impact investing is a style of sustainable investing that is growing in popularity.
As interest in sustainable investing grows around the world, more and more investors are seeking strategies that can deliver not only strong financial returns, but also a measurable impact on environmental and social challenges such as climate change, wealth disparities and unequal access to healthcare.
Impact Investing is a style of active, sustainable investing; it seeks to both generate long-term returns as well as achieve positive social and environmental outcomes by investing in businesses that contribute towards a more sustainable and inclusive world.
Different fund managers can take different approaches to impact investing, including how they identify companies that drive positive change and what their return objectives are. As such, it’s always advisable for investors to thoroughly research their active manager before investing to ensure their preferences and values are aligned.
Impact themes
Impact investing themes also vary between fund managers and products. For example, Vanguard’s recently launched Active Positive Impact Fund is managed by Baillie Gifford, who have identified four global thematic challenges that the Fund will seek to address through its investments:
Social inclusion and education
Address rising income and wealth inequality by building a more inclusive society and improving access to quality education.
Environmental and resource needs
Address climate change and the environmental impact of human activities by improving resource efficiency and reducing environmental impact of economic activities.
Health care and quality of life
Address health care inequalities and living standards by improving factors that lead to a greater quality of life.
Base of the pyramid
Address economic growth not filtering down by helping those at the bottom of the global income ladder.
Risks
As with all investing, impact investing also carries risks. Different investment strategies and asset classes have different levels of risks. As active impact investing seeks to outperform the benchmark over the long-term, it may generally be more suitable to investors with a higher tolerance for the risks associated with share market volatility and a longer time horizon.
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Source: Vanguard
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