17-Jul-19

Four key areas for impact investors to concentrate on

Impact investing has come into the mainstream, giving investors a genuine opportunity to back funds that provide them with a fair market return, while also making a positive contribution to society. The Global Impact Investing Network (GIIN) has already recorded a 50% rise in the size of the market. As appetite for impact investing grows, investors face the challenge of determining which sectors and businesses offer the best returns and social impact. There are however four key areas that investors can look at that address this issue- healthcare, the environment, children and young people, and inequality.

Healthcare

Global healthcare represents an opportunity for impact investors to generate both strong financial and social returns. The American Century found healthcare was one of the causes that matter most across all age groups, with one in three millennial investors stating it is the area they care most about. Medical Technology is already set to grow globally at 5.6% per year. Impact allocations to healthcare have experienced a 15% compound annual growth rate (CAGR) over the past five years, according to GIIN. At a time where the deployment of private capital is pivotal to the growth of ‘MedTech’ solutions, healthcare presents a clear opportunity for impact investors to generate strong, long-term returns, and truly make a difference to those most vulnerable.

Environment

The impact of climate change has opened numerous opportunities for companies to offer alternative or sustainable solutions. Ecologic, for example, is a firm benefitting from the banning of single use plastics, having created a water-resistant paper bottle with eco-friendly packaging made from 100% recycled cardboard and old newspaper. Ecologic is just one example of the many opportunities to work with firms providing solutions to global environmental problems.  Companies are facing increasing calls to be more accountable for their environmental footprint making investing in environmentally responsible companies more attractive as they are more in tune with the forces and attitudes shaping the global economy. 

Children and Young People

Impact investors are also funding projects that aim to support the growth and advancement of children and young people. The UN Sustainable Development Goals aim to improve and expand access to better education and services for children and young people, in order to tackle unemployment, address skill shortages and provide fair opportunities for all. To help meet these goals MWS Technology is transforming the efficiency and compliance of organisations that deliver apprenticeship training to young people through its platform, ‘Aptem’ which helps providers manage programmes directed at young people who have a vocational training need or who may not have had prior educational or parental support. 

Inequality

Private investment is also an increasingly powerful tool in reducing global inequality. Some funds are focused on closing the gap between men and women in business. Gender lens advocates argue there is also a clear link between companies with diverse workforces and strong financial returns. Several studies from the Peterson Institute and Ernst & Young have found bringing more women into higher management boosts profitability - making it an opportunity worth up to $28tn.  The G7 2X Challenge, for example, is a commitment by development banks within the world’s biggest economies to invest $3bn in projects aimed at women by 2020, while the Billion Dollar Fund, a consortium of finance groups, is halfway to reaching its $1bn capital-raising target.

The scope for impact investing goes well beyond these four sectors – but they form a useful lens to focus our impact investing. As this impact grows investors should seek to create a diversified, risk-assessed portfolio that contains allocations in not one, but several of these crucial areas.

Julian Pickstone is Head of Social Impact at Triple Point, which has over £1.4bn AUM.

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