WHEB Commentary

George Latham

Money at Work: Bringing Impact to Life


As you enter our building you are greeted with a neon version of a Dalai Lama quote: “If you think you are too small to have an impact, try going to bed with a mosquito in the room”. Strictly speaking he said “to make a difference”, but either way the point is clear. Every person and every pound can make an impact.

As we launch our 5th annual Impact Report Prosperity with Purpose, one thing has become abundantly clear. While the average person on the street does care what their money is doing, in practice few seem to know what is going on in their portfolios.

Savers are disengaged. To them investing is boring. Due to the endemic distrust of financial services, especially after the 2008 crash, the potential power of the individual to effect change on the planet is lost.

The zeitgeist is clear. There is a wider engagement with environmental issues— you just need to look at the numbers participating in Extinction Rebellion protests and school strikes and marches for the climate—but the perceived link between the power of investing and solving these problems is very weak.

Impact investing is investing in companies chosen specifically so they will not only generate a financial return but also a measurable social or environmental benefit.

Over the past 30 to 40 years, financial services products have become financialised. By that I mean financial jargon has replaced plain English and terms such as benchmarks, indices, alpha, beta and tracking error are used to ‘explain’ increasingly complex products.

Investment language relates to the financial behaviour of the product, and not its economic or social usefulness. A blizzard of algorithms, spreadsheets and complex formulae are all disconnected from real world outcomes.

Today’s consumer is less likely to be emotionally invested in a financial product or have a relationship with it, making the investment relationship transactional. Investment products are typically sold on past performance, despite what it says in the small print.

Due to the FCA’s focus on transparency, new regulations mean the cost of advice is much clearer to the client than it used to be. That is no bad thing, but the rise of passive investing could be proof of fee sensitive, disassociated investing.

For the investment adviser too, it is far harder to build a relationship with clients or prospects; a problem accentuated in a post RDR/MIFID II world. Relationships built over a long lunch or on the golf course are becoming a thing of the past.

At the same time, the world has become more engaged with the plight of the planet, thanks in part to the voices of Greta Thunberg and Sir David Attenborough. The issue of sustainability is now mainstream.

Whether it is plastic in oceans, or the damage to ecosystems from increasingly intensive farming, ongoing population growth is going to put even more strain on the planet’s resources. Nearly 33% of the world’s arable land has been lost to erosion or pollution in the last 40 years, according to experts from the Grantham Centre for Sustainable Futures.

A recent report by the Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services (IPBES) said that one million species are at risk of extinction. Since 1970, the human population has more than doubled from 3.7 billion to 7.76 billion today and according to the UN, the urban population, which stood at 55% of the total population in 2018, will increase to 68% by 2050.

But despite the mass mobilisation of environmental concern, it is still only the minority that has bridged the gap between the risks of our current path and the opportunities in building a sustainable investment framework.

In 2014 Christine Figueres, executive secretary of the UN Framework Convention on climate change, spelled out the problem. “Climate change increasingly poses one of the biggest long-term threats to [pensions, life insurance and nest eggs] investment and the wealth of the global economy”.

In 2015, the UN launched their Sustainable Development Goals (SDGs). In the same year, the Paris Climate Agreement was created. These developments underlined the scale of the challenge, but also the scale of the investment opportunity to invest in businesses, technologies and projects that help solve this challenge. Today, bankers such as Mark Carney, Governor of the Bank of England, are spearheading the cause.

WHEB’s fundamental belief and the framework for our investment themes is that the global economy is now in the early stages of a major transition to a low carbon and more sustainable model. WHEB’s investment strategy is wholly-focused on listed companies that are enabling and benefiting from this transition.

At the end of December 2018, we had 58 investments across nine investment themes aligned to seven of the 17 SDGs. Through our interactive Impact Microsite, we showcase some of the underlying companies that we invest in and their relationship to the SDGs.

As our Impact Calculator shows, the powerful thing about impact investing is that it reconnects the investment with real economic and social outcomes. Through impact money being ‘put to work’, useful products and services are created.

Visually demonstrating what an annual ISA allowance of £20,000, for example, can achieve in terms of environmental and social impact shows investors the power of their money.

For the 12-month period ending 31 December 2018, £20,000 invested in the strategy was associated with positive social and environmental impacts equivalent to:

  • 16 tons of CO₂e avoided
  • 36 MWh of renewable energy generated
  • 4 tons of waste recovered or recycled
  • 200,000 litres of waste water treated
  • 280,000 litres of water cleaned and distributed for reuse
  • 1 person received healthcare treatment
  • 1 person benefited from preventative healthcare
  • £1,300 of healthcare costs saved
  • 2 days of tertiary education provided

Our Impact Calculator now shows the cumulative effect of the impact of an individual’s investment over one, two and three years. It is one of the tools on our interactive Impact Microsite that enables an adviser to talk to a client in a more holistic way about their investment.

Being able to explain the wider sense of what an investment return is based on, helps to build stronger relationships with an adviser’s clients. The saver has a greater sense of connection with their investment portfolio and ownership of the positive outcomes their money is achieving.

As mentioned above, 2015 was a pivotal year highlighting that the solutions to the world’s impending disasters are also investment opportunities. It was also the year WHEB became the first listed equity investor to publish an impact report. Two years later, WHEB became the first to report on the positive social impact, as well as the environmental impact, of an investment strategy.

WHEB is helping to create a positive emotional connection between our investors and their money by explaining what impact their savings can have in the real world. Bringing impact investing to life is essential if we are to mobilise significant amounts of capital to help to solve the world’s problems.

This article has focused on the need for bringing investing to life and connecting money with the social and environmental needs close to peoples’ hearts. For a full picture of the positive impact of the investments in the WHEB strategy, which includes social impact, download our 5th annual Impact Report Prosperity with Purpose, here.

 

Photo © Niki Natarajan Artists: Jim Vision, Jane Mutiny, Curtis Hylton

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