Investing is all about making a better future for yourself, so it’s a case of backing the company that will give you the best return, both through capital growth and dividend payments, right? That certainly used to be the established way of thinking and by default it was believed that any investment strategy deviating from those simple principles would end up costing you.
But the mindset is changing. Analysts have crunched the numbers and there’s evidence out there to say that if you invest in a company that does good, over the long term they can outperform of their peers. On top of this, those companies that behave in a more holistic manner tend to see steadier returns and also attract more supportive investors, so you don’t see the wild swings in the share price on a day-to day basis.
These concepts come by many different names including ethical, social, environmental, impact or values-based investing, and each comes with some subtle differences, but they all have one thing in common. The investor is looking for more than just the absolute financial return.
And it works. Just this month, the Church of England – which has an investment policy dictating that all its holdings should be compatible with Christian values – announced that during 2016, its multi-billion pound endowment fund achieved a return of over 17%, completely smashing its target of 5% above inflation. They sold holdings in News International in the wake of the phone hacking scandal and when it materialised that one investment was in turn exposed to the pay day lender Wonga, again this was dispatched from the portfolio.
It’s not a one-off for the church, either. Over the last 20 years, their investments have averaged an annualised return of almost 10%, which would outperform the FTSE-100 index, but at the same time they’re screening to make sure there’s a degree of consciousness as to what the money is doing.
One impact-investing luminary recently stated that the vast majority of investors seemed hell-bent on dying rich, but dying quickly. Having a degree of awareness as to what your money is doing when you give it to a fund manager or a company helps mitigate some of this risk – and can help make the world that bit of a better place. There’s absolutely no need to dismiss the idea of making a healthy financial return, but invest wisely and your money can make a difference. You could elect not to invest in fossil fuels to slow climate change – or even invest in green energy like solar or wind turbines. Or what about companies that build and operate social care facilities – often with a strong social mission at their heart. Or how about backing a company that’s spearheading research to find a cure for cancer?
Your money can be put to good use and make a good return – you just need to know where to look.