Impact investing: What is it? And how you can get twice the payoff

Retired cycling magazine editor and author Neil Irvine has always been inclined towards conservation causes but, when his dad died, he inherited his portfolio of shares … and discovered most were in oil companies and coal mining.

As a result, he gradually divested himself of those, signed up with a new financial advisor last year and put his money in impact, or ethical, investments instead.

“I didn’t like the feeling of getting income from the things I knew were harmful to the environment,” says Sydneysider Irvine, 65.

“And a lot of the responsible funds are showing good returns as it’s such a growth industry. The future looks bright for environmentally sustainable industries and stocks should continue rising. It’s a win-win.”

His guide, CreationWealth director and senior financial advisor Andrew Zbik, says there’s been a fresh flood of people coming to him since the start of the pandemic, saying they’re now interested in doing good with their money.

He’s not sure if lockdowns have given people the time to look more closely at their investments, or whether it’s a more significant attitudinal change.

But he does know that more people are now keen on finding listed companies or Exchange Traded Funds (ETFs) that meet the criteria of impact investing, an approach that seeks to bring both a financial return and an actively measured positive social or environmental outcome.

“I’ve had a lot of conversations with clients over the last 18 months around their values and how they don’t just want a recurring income; they want to invest in something worthwhile,” Zbik says.

“Many of them have changed their lives and are more now focused on family and friends rather than on material possessions.

“As well, 10 years ago, you might have wanted to invest in solar companies, for example, but I could only find two listed in Australia and they were not making money and relying on raising capital. Now, however, there’s been a huge growth in ETFs, which provide a great way for investors to purchase a basket of companies in a particular sector or index.”

Investment company BetaShares launched the first of its current eight ethical ETFs in January 2017 and now accounts for 65 per cent of the $5.3 billion industry that’s grown 88.7 per cent over the past year.

Early on, people believed the ethical aspect was a trade-off for profit, but that’s no longer the case, says chief executive Alex Vynokur.

One of the ETFs, the global sustainability fund ETHI, had a return of 32 per cent last year, and 24 per cent a year for the last three.

“My perspective is that COVID probably accelerated a trend towards impact, or responsible, investing that was already happening,” Vynokur says.

“It gave people more time for introspection, and some of the messages have been resonating more and more.

“Also, people now understand that, as well as the satisfaction or pleasure of this kind of investment, they are making very good returns. Investing in new industries developing alternative sources of energy or fighting climate change isn’t only the right thing to do, it’s also a phenomenal business opportunity.”