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What is impact investing and how it can help your money make a positive difference - Metro

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Date: 2021-09-06 08:01:26

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Look for a provider you trust and whose vision aligns with yours (Picture: Getty Images/iStockphoto)

Tax-efficient Stocks and Shares Isas are an immensely popular way to invest money and take advantage of potential higher returns than savings accounts.

Across the UK, we collectively hold more than £22.6billion of our savings in these type of Isas.

And this looks to be on the rise, as investing becomes more popular, especially with younger people.

Four in ten 18 to 34-year-olds say that their interest in investing has increased during last year, with the most common reason being the pandemic making them more aware to prepare for their long-term financial future.

This is fitting as, because investing involves an element of risk, it should be regarded for the long term – usually five years or more.

The pandemic has also led many of us to re-evaluate our consumer choices and pay closer attention to the link between our finances and the wider world.

People are increasingly aware that investments may be linked to harmful industries such as fossil fuels, arms and tobacco.

But just as you would consider the ethics of what company to work for or what politician to vote for, you can take the same due diligence with your investments.

Once you’ve ruled out the areas you don’t want to invest in, the question is how do you align your money with the areas you do want to support?

Impact investment funds support companies that are improving sustainability (Picture: Getty Images/iStockphoto)

Choosing impact investments allows you to ensure your money is measured against creating positive social and environmental change, as well as returns; so that not only do your investments make financial sense, but they’re also a powerful force for positive change.

Impact investment funds support large companies that are moving towards improving sustainability, and some of the best align with impact themes based around the UN Sustainable Development Goals.

This is because impact fund managers incorporate not just green issues, but social issues too – like governance structures, fair pay and ethical supply chains.

Many investment funds and managers use the term ESG (Environmental, Social and Governance), but this is not a formally defined term, and is without agreed standards.

We need industry-wide standardisation in the definition of ‘sustainable’ funds – and in the meantime, you may need to do your own research to avoid greenwashing and choose investments with real impact.

It’s important to do your research to make sure providers are operating responsibly and not ‘greenwashing’ (Picture: Getty Images/iStockphoto)

Look for a provider you trust that operates with full transparency, and whose vision aligns with yours.

So-called ‘passive’ investment products that just track an index don’t do proper due diligence and engagement, so look out for ‘active’ impact fund managers and banks that are focused around sustainable investing and behaviour.

These funds actively engage in the environmental and social performance of the companies they invest in.

There are some excellent independent organisations that give advice, such as good-with-money.com, or look for accreditations from Square Mile 3D Investing and awards by Environmental Finance or Investment Week.

All investments involve an element of risk, but with impact investing, you know that your money is being put into projects with long-term sustainability at their core – which is why these funds are performing as well as or better than traditional ones in the past few years.

A sustainable fund isn’t one simply investing in the least damaging companies, it is investing in businesses that are genuinely taking responsibility for our future.

Dr Bevis Watts is the CEO of Triodos Bank UK.

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Get in touch by emailing MetroLifestyleTeam@Metro.co.uk.

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