Impact investing can be a great way to add diversification to a standard portfolio. The positive impact approach leads to selecting companies that are generating solutions and run their business in a sustainable manner. Such companies avoid fines and other penalties and have stronger relationships with their customers, suppliers and staff. Furthermore, they tend to operate in sectors with high growth potential.
Impact Investing is becoming more and more accessible to UK retail investors, with close to 90 ethical and sustainable investment funds managing more than £13.5bn of assets currently available. In July last year, FE Trustnet published its inaugural ethical funds list and we expect to see further research demonstrating the business case for investors.
For more sophisticated investors, last year the UK Government became the first in the world to incentivise social investment through the personal tax system. Social Investment Tax Relief (SITR) allows individuals to deduct 30 per cent of the sum invested from their income tax liability for the current or previous tax years. However, the investment must be held for a minimum of three years for the relief to be retained.
SITR-qualifying investments have been restricted by the current £290,000 limit on the amount that organisations can raise. The Government has applied to the EU to increase the amount, with a decision expected imminently.
Impact investing is now accessible to everyone and not just limited to private equity investors, which had been the case a few years ago. With model portfolios and a growing number of funds eligible for Isas and Sipps, as well as general investment accounts and the introduction of SITR, viable options are now available for investors who care about how and where their portfolios are invested – regardless of affluence.
Damien Lardoux is portfolio manager at EQ Investors
The momentum behind impact investing is likely to be spurred on by the huge challenges facing the world.
Impact investing can be a great way to add diversification to a standard portfolio.
Impact Investing is becoming more and more accessible to UK retail investors.
