24 Jun 2019
John William Olsen, Fund Manager
The world is facing a rising tide of societal challenges, from the potential chaos associated with the breakdown of our climate, to unsustainable levels of waste and pollution, to vast and growing social inequality. Find out more about how investors are playing an increasingly pivotal role in directing capital to where it is most needed.
Governments around the world lack the resources needed to deal with these challenges on their own; for example, to achieve the United Nations Sustainable Development Goals (SDGs), it has been estimated that some US$6 trillion a year will need to be spent, but government alone cannot foot this bill, with an annual funding gap assessed to be in the region of some US$2.5 trillion. Because of this, investment capital is vital, and impact investors are playing an increasingly pivotal role in directing this capital where it is most needed.
Impact investment means investing in companies that aim to deliver meaningful societal outcomes by addressing the world’s major social and environmental challenges, while at the same time producing a financial return. These investments target a wide range of impact areas, which can include battling climate change, providing accessible healthcare, or delivering quality education, among others. These impact investment areas are increasingly being mapped to the SDGs, which provide a framework against which impact can be assessed and measured.
Historically, impact investing consisted primarily of private finance to fund specific, impactful projects. Because of this, it sat chiefly within the sphere of institutional or high net worth investors, with little access for the general public and more limited capital available. However, this is changing with the emergence of listed equity funds with impact remits. These can provide liquid, open-ended investment vehicles, which allow for the ‘democratisation’ of impact, giving a stake in the game to ordinary people who want their investments to make a difference, or who realise the vast opportunities offered by investing for the good of society.
The M&G Positive Impact Fund provides such an opportunity for those who want to make a difference with their investments without giving up returns. Through a concentrated portfolio of global stocks, we make long-term investments in companies that aim to generate a positive social and/or environmental impact alongside a financial return, using a disciplined, robust stock selection process. The value of the fund’s assets will go down as well as up. This will cause the value of your investment to fall as well as rise and you may get back less than you originally invested.
We have a rigorous approach to identifying impactful investments, which we call our ‘triple i’ methodology. This analyses the Investment quality, Intentionality (companies in the fund must have a clear intention of delivering impact – it cannot be an accidental outcome) and Impact of a company to assess its suitability for the fund.
We embrace the Sustainable Development Goals framework and invest in companies focused on six key areas, mapped against the SDGs, three of which are social and three environmental. By mapping these investment areas to the SDGs, the fund follows a solid framework for determining material impact areas, while also helping to frame the measurement of how those positive impacts are being achieved.
Given the scale of the challenges the world is facing today, we need to act now to help protect the future of the planet and our place in it. We believe that impact investment should increasingly help drive solutions, and can do so while delivering attractive investment returns to investors. The fund invests mainly in company shares and is therefore likely to experience larger price fluctuations than funds that invest in bonds and/or cash.