Ethical investing has come a long way in the last decade. Now there’s a new option on the market – impact investing – that’s designed to use the power of your money to fuel companies making the world a better place.
This content was created in paid partnership with Harbour Asset Management.
For a very long time the role of an investment manager was to make the most returns possible. More recently, however, there’s been a significant movement that’s seen customers demand their funds are divested of cluster bombs, nuclear weapons and tobacco, and assurances money is not being invested in companies guilty of human rights abuses.
Now, there’s a new development, impact investing, that takes the idea of ethical fund management a step further. Impact investing isn’t just about avoiding “bad” stocks, it’s about actively investing in companies that are doing good and using shareholder power to pursue sustainable outcomes – for people and the planet.
Still confused? Read on for answers to some commonly asked questions about impact investing, and how it forms the basis of Harbour Asset Management’s new Sustainable Impact Fund.
First off, what is impact investing?
Impact investing is when investors actively seek to create social and environmental benefits in addition to generating financial returns. Rather than simply excluding investments in harmful industries such as coal, gambling or tobacco, impact investing goes further by seeking out companies making a positive difference.
“Offshore we’ve seen a flurry of investors who want to have their investments made for them in a way that doesn’t have a harmful impact on people and the environment,” says Chris Di Leva, portfolio manager at Harbour Asset Management. “Even more than that, they want to put their capital towards things that mean something to them and are actually going to solve issues. And for us, it’s really a further evolution of how people invest in New Zealand.”
To meet this demand for more responsible investing, Harbour recently launched its Sustainable Impact Fund – a diversified growth fund designed with the twin goals of generating investment returns and investing for positive impact on both people and planet.
Interesting, but how are you supposed to define “positive impact”? Isn’t it all pretty subjective?
To a degree, yes. Obviously we all define impact differently, but one way of doing this is by making sure every investment has a significant positive impact towards the United Nations’ 17 Sustainable Development Goals. For Harbour’s Sustainable Impact Fund, these 17 goals have been grouped into three broad areas of impact which each holding in the fund is mapped to. These three areas are:
- Climate and resource impact (eg affordable and clean energy)
- Social, equity and quality of life (eg clean water and quality education)
- Innovation and productivity (eg building sustainable cities and infrastructure)
So what exactly is in this fund then? Where do these assets come from?
The Sustainable Impact Fund includes a mix of both domestic and global investments. Assets in New Zealand and Australia are actively managed by the Harbour team, while globally, the fund engages with the expertise of industry leaders, such as global sustainable funds pioneer Mirova and Harbour’s long term global partner T. Rowe Price. The fund will also partner with local venture capital firm Icehouse Ventures to invest in up-and-coming businesses and technology.
In addition, Harbour has also committed to the fund being carbon neutral. Although already designed to have a lower carbon footprint than the market benchmark, any carbon that’s contained in the fund will also be offset by investing in projects which actively prevent carbon release. For example, funding projects (paid out of Harbour’s own management fees) – such as the Bagepalli Coolie Sangha biogas project setting up biogas units in households in rural villages in Chickballapur, India. This project helps to reduce the use of non-renewable fuels, prevents indoor pollution, frees up women’s time, and improves the health and economic conditions of families.
What are some companies the fund invests in?
One New Zealand company making a positive social impact is Pacific Edge Limited which specialises in discovering, building and commercialising innovative cancer diagnostic tests. Another is Meridian Energy which Harbour considers a leader in renewable energy projects in New Zealand. Globally, there’s also NextEra Energy which is considered the world’s largest renewable energy provider, rapidly converting its fossil fuel productions to more sustainable sources, such as solar and wind.
According to Di Leva, companies like NextEra are a good example as to why excluding entire industries – as many funds in recent years have been doing – can often be a blunt tool. “If you told the average New Zealander that a certain fund has a fossil fuels exclusion, I’m pretty sure they wouldn’t think that meant you were also excluding the largest renewable energy provider in the world,” he says.
“This is where active management is so important. Every Australasian company in our portfolio we know intimately – we go in and really research them, and we know their management. This also applies to our global managers Mirova and T. Rowe Price who know their companies very well and can make a qualitative assessment on the impact that they’re making.”
That’s all well and good, but does investing in an impact fund mean you’re getting lower returns?
While the scope of what an impact fund can invest in is certainly narrower than a regular fund, that doesn’t necessarily mean you’re sacrificing on performance. It may perform differently from the rest of the market initially, but a fund like the Sustainable Impact Fund is a long-term investment designed with a timeframe of a minimum of five years. And with the environmental and social issues becoming increasingly more important for consumers and the economy, companies looking to make a positive impact in these areas present a massive opportunity for growth.
“Every position in this fund has to be impactful, but it also needs to stand up from an investment point of view. And actually, in building the portfolio, that’s been easier to do than we initially thought because there are these major transitions taking place. Decarbonisation, for example, is a massive opportunity for companies to grow and do well,” says Di Leva.
“The need to see change in the next decade is really quite urgent … and it’s actually our view that impact investing could become mainstream over time. Across all our funds in the next 10 years time, we think this is the way we’ll be investing people’s capital. One day in the not too distant future, taking into account impact will simply be good business.”
Harbour Investment Funds are issued by Harbour Asset Management. Our Product Disclosure Statement is available at harbourasset.co.nz. This does not constitute advice. See harbourasset.co.nz/terms-and-conditions