For all the ups and downs of the markets, there have been several undeniable trends in recent years – and one of them has been the rise of impact investing. According to The Global Impact Investing Network, the size of the worldwide impact investing market now exceeds $1 trillion under management.
Still, despite its growing popularity, persistent myths about impact investing have left some investors feeling hesitant to choose an impact investing approach. The good news is, the myths are simply that – myths – and we’re here to debunk them and show exactly how impact investing is a great solution for those seeking change in the world.
Myth #1: You can have either impact or returns, never both
Many investors mistakenly believe that impact funds are either about creating impact (but not returns), or driving returns without any material impact thanks to the increasingly common phenomenon of impact washing. The reality is, there is a middle ground right here at Genus.
The Genus High Impact Equity fund’s gross performance over the last five years as of September 30, 2024 (14.77%) has bettered the MSCI World Index (14.05%), which is a basket of all the largest companies around the globe. And it’s generated impact by focusing on companies whose activities align with the UN’s Sustainable Development Goals.
Of course, investment returns are never guaranteed, and are not the only consideration – or even the primary consideration – for many impact investors. And that’s why returns from impact investing tend to be slightly lower than the market average: according to a 2021 study from the University of California, the median impact fund had an internal rate of return of 6.4% compared with 7.4% for the median non-impact fund.
Myth #2: There’s a lack of transparency on the impact of an impact fund, and greenwashing is rampant
As the world of impact investing has grown, it’s clear that some funds do a better job than others of transparently showing how impact is measured. Greenwashing and impact washing – the practice of putting a positive spin on the environmental activities or impact of a portfolio company, while downplaying the counter facts – has become a real problem.
One way an investment firm can ensure transparency is by having robust impact metrics for tracking each company in its portfolio. At Genus, investors get a quarterly report detailing the Net Impact ScoreTM for their investments – a data-driven analysis that highlights the percentage of revenues generated from a portfolio company’s products or services aligning with the UN’s Sustainable Development Goals (SDGs). For Genus’s High Impact Equity Fund, the portfolio aims for more than half of its revenues to be derived from positive impact activities.
Myth #3: Divesting is the only way to create change
For many socially responsible investors, making a statement about your values in your portfolio is important. Sometimes that means divesting from companies that engage in activities counter to those values. But that’s not the only way.
At Genus, we offer a number of ways to filter activities that don’t align with your values – including through our Fossil-Free funds. For example, we partner with SHARE, the Shareholder Association for Research and Education, an organization that represents a collective of investors and helps influence corporate decision-making by meeting with management to discuss areas of concern.
“We work with SHARE to leverage more capital and improve these firms,” says James Dick, Sustainable Investment Analyst at Genus. “It’s something that we report on quarterly, so anyone can go onto our website and see how we voted with our holdings, and see specifically how that impact is being generated.”
Myth #4: Impact investing “doesn’t make a difference anyway”
There’s little doubt that having strong metrics is vital to telling the story of impact. At Genus, our Net Impact Score was a pivotal tool in that respect – and won top prize in the Clean50 Top Project category in 2021. It also helps to have those tools intricately tied to a respected international benchmark, such as the U.N.’s 17 SDGs.
But equally important is having compelling stories to tell – of lives changed, and communities transformed because of impactful investments. To illustrate, Dick points to one of the Genus High Impact Equity Fund’s investments, Edwards Lifesciences – a manufacturer of heart valve systems and repair products. In 2022, over 800,000 underserved patient lives were improved through Edwards’ products – contributing a net-positive impact to the UN SDG of Good Health and Well-Being.
Myth #5: Private impact is the only way to do impact investing
Private equity investments offer certain advantages for foundations and high-net-worth clients – with very tailored strategies offering detailed accounting of the impact of each dollar invested.
But those sorts of investments – typically early-stage seed companies that are both high risk and low liquidity – are not for everyone. For many investors, the very same benefits can be realized through the High Impact Equity Fund – but on a much larger scale.
“We work with different organizations that allow your, say, $1,000 investment to have much more say in what the firm’s doing,” says Dick. “SHARE represents over $90 billion; we manage over $2 billion. So it definitely doesn’t have to be a private investment to see that kind of meaningful change.”
Interested in making an impact with your investment portfolio? Get started today with our digital and personal wealth management services.
References:
- Dean Hand, B.R. (no date) GIINsight: Sizing the impact investing market 2022, The GIIN. Available at: https://thegiin.org/publication/research/impact-investing-market-size-2022/ (Accessed: 04 September 2024).
- Returns are annualized and gross of fees-net of expenses for a five-year period ending Sept 30, 2024.
- Future returns: How impact investors balance objectives | barron’s. Available at: https://www.barrons.com/articles/future-returns-how-impact-investors-balance-objectives-01611088113 (Accessed: 04 September 2024).
- (2021) Genus Capital Management wins big with two clean 50 awards, Cision Canada. Available at: https://www.newswire.ca/news-releases/genus-capital-management-wins-big-with-two-clean-50-awards-825676661.html (Accessed: 04 September 2024).
