The financial world in the UK has been changing rapidly, with many banks and financial institutions taking a closer look at socially responsible investing (SRI) and impact investing (II). Recognising the important principles of environmental, social and governance (ESG) criteria and their application to the financial realm, these two methods of investing are demonstrating that it’s possible to invest in a manner which is socially responsible, without sacrificing returns.
For those who are new to socially responsible investing, ESG criteria refer to standards used to indicate environmental, social, and ethical risks that apply to an individual company. Impact investing, which has been defined by the Global Impact Investing Network as “investments made with the intention to generate positive, measurable social and environmental impact alongside a financial return”, is a further subset within the umbrella of SRI.
Socially responsible investing recognising ESG criteria is increasingly popular amongst UK investors, with Bank of America Merrill Lynch Research estimating that the European socially responsible investing market is set to grow from €1.3 trillion to €2.8 trillion, which would represent a compound annual growth rate of 16%.
The Benefits of Impact Investing and SRI
Socially responsible investing and impact investing offer important benefits to the investor, in the form of non-financial returns, and provide an avenue for investors to actively promote positive change. Here are the key benefits of these two types of investing:
-
Environmental: Investors using socially responsible investing or impact investing can support business practices which are environmentally sustainable. This kind of investing might help to ensure that a company is adhering to certain levels of carbon emission targets, or is using renewable and clean energy resources, for example.
-
Social: Investors can support businesses that are committed to social causes, such as education and health care initiatives, or which have policies for supporting diversity. Companies which have unfair hiring practices or do not have good working conditions for staff would not be supported by investors in this way.
-
Corporate Governance: Responsible investing looks at how a company is governed, and takes into account business practices such as corporate transparency, executive remuneration and shareholder rights.
-
Financial Return: Despite these non-financial returns, investors still want to see a financial return on their investments. The combination of ESG criteria and financial returns makes socially responsible investing and impact investing more attractive than ever before.
-
Peace of Mind: There are intangible benefits of socially responsible investing, such as peace of mind, knowing that your financial assets are contributing to the greater good of society and the environment in some way.
Examples of Impact Investing and SRI in the UK
The UK is home to a number of financial institutions and banks that have embraced the concept of impact investing and SRI. Here are some examples of how they have done so.
Barclays Bank PLC
Barclays Bank PLC is a UK-based financial services provider, and one of the biggest investors in responsibly sourced and sustainable bonds. It also launched its Responsible Investment Frameworks (RIFs), a series of non-financial tools that assess and measure the environmental and social impact of its investments. It works with its clients to create tailored investment solutions which take into account their values and objectives.
Investment Management Association
The Investment Management Association (IMA) is the UK’s main representative of asset management firms and promotes their ethical and responsible investment activities. It has developed its own set of Ethical Principles and Guidelines, which define the criteria for socially responsible and impact investing and encourages companies to adopt the principles.
UBS
UBS is one of the world’s leading financial institutions, and has been a leader in the field of socially responsible and impact investing. Its Sustainable & Impact Investing team has developed practical solutions such as the ‘UBS Global Impact Investing Solutions’ framework, which enables its clients to identify, assess, and invest in impact investments aligned to individual values, preferences, and risk profiles.
Exploring Impact Investing in the UK
With increasing public awareness of the importance of socially responsible investing, the UK is making great strides in this area. An important indicator of the UK’s commitment to socially responsible investing is the launch of the Impact Investing Institute (“III”) in 2020, the first of its kind in the world. The institute is designed to be a hub of activity and research to drive forward responsible investing in both the public and private sectors. It also provides UK investors with access to global research and advice on impact investing.
The UK has also been taking a leading role in shared socially responsible investment, a model which is designed to reduce volatility and create better access to capital for investors who may not want to invest directly in the stock market. Shared socially responsible investment is typically open to pension funds, charities and other institutions in the UK, with the aim of allocating capital to businesses that are socially and environmentally sustainable, while still achieving financial returns for the investor.
Conclusion
The UK has always been an important hub for financial services and investment, and is continuing to lead the way with innovative and responsible investment solutions. Through the advancement of both impact investing and socially responsible investing, it is becoming increasingly easier for UK investors to incorporate environmental, social, and governance criteria into their investment goals. With leading financial institutions such as Barclays, UBS and the Investment Management Association actively pursuing and promoting SRI, the UK is well-positioned to become the global leader in this area.