Putting Our Dollars To ‘Good’ Use
We’re told our super can create a more sustainable world. But how does that work in reality?
Written by Victoria Kent, Senior Investment Specialist
This information does not take into account your personal objectives, financial situation or needs. You should consider if the relevant investment is appropriate having regard to your own objectives, financial situation and needs.
Investing in shares
Direct investment through equity securities (e.g. purchase of ordinary shares in a company) is essentially part ownership of an asset; usually a business.
This means that through your investment, you own part of the company, and a proportionate share of the profits the company may distribute.
It’s fundamental to understand ownership does not happen in a vacuum, or in the ether of the stock exchange. Ownership equals real responsibility for the impact a company’s goods or services are having on society and the environment.
When you invest in a company, you are not only funding their operations, you’re also enabling them to continue producing the goods and services which can have a positive or negative impact on our world.
Let’s consider a solar energy producer vs. a cigarette manufacturer for impact on society.
If you’re invested in a profitable solar energy company, you’re benefiting financially while the company sells a product creating a greener world.
If you’re invested in a profitable cigarette company, you’re potentially making money at the expense of someone buying a known cancer-causing product. Which company would you support?
Interestingly, share ownership entitles the shareholder to a say in the affairs of the company.
This is where voting becomes important. Investment managers must pay attention to key votes and governance issues impacting the companies in their portfolios.
Impact Investing
The rise of impact investing is a very exciting development in global finance, whereby the financial markets provide capital to address the world’s most pressing challenges in sectors such as sustainable agriculture, renewable energy, conservation, microfinance.
So, what is it?
Impact investments are those made with the intention to generate positive, measurable social and environmental impact alongside a financial return.
An example of an impact investment is Social Ventures Australia’s (SVA) Resolve Social Benefit Bond, which is expected to improve the mental health and wellbeing of participants while generating significant savings for the NSW Government through a reduction in participants’ utilisation of health and other services. In particular, by reducing the number of days spent in the hospital.
These savings will be shared to fund the delivery of the program, as well as with investors to provide a financial return on their capital.
This type of investment is distinct from philanthropy, as not-for-profit and charitable organisations are rarely concerned with a financial return.
That is not to say an impact investment guarantees a financial return, nor does it guarantee an “impact” — environmental, social or other.
How impact investments measure their “impact” is of vital importance to the success of such investments, and choosing what and how to measure it is not a straightforward task.
Our friends at the Global Impact Investing Network (GIIN) have listed the following as best practices for impact measurement:
Establishing and stating social and environmental objectives to relevant stakeholders
Setting performance metrics/targets related to these objectives using standardized metrics wherever possible
Monitoring and managing the performance of investees against these targets
Reporting on social and environmental performance to relevant stakeholders
There is no doubt about the exciting potential of impact investing. Bringing impact investing further into the mainstream will provide new firepower in the push to achieve the Sustainable Development Goals.
Green Bonds
Green bonds, also known as climate bonds, are debt investments (or loans) intended to encourage sustainability and support climate-related or other types of special environmental projects.
More specifically, green bonds finance projects aimed at:
energy efficiency,
pollution prevention,
sustainable agriculture,
fishery and forestry,
the protection of aquatic and terrestrial ecosystems,
clean transportation,
sustainable water management and the;
cultivation of environmentally friendly technologies.
Green bonds have been growing increasingly popular, and currently, there is an estimated US$62.8 billion financed by green bonds.
There are also different types of green bonds.
The World Bank issues green bonds to finance projects around the world, such as India’s Rampur Hydropower Project, which aims to provide low-carbon hydroelectric power to northern India’s electricity grid.
Be it through green bonds, impact investing or direct investment, the more money invested in companies producing goods and services that impact positively on society, the more we can help achieve the SDGs.
Through our super, collectively we have the investing power to help drive this positive impact beyond our voting and consumer power.