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Impact investing: how you can drive change for a better world.

Holly Thomas

Key Points

  • You can enable firms to tackle social and environmental issues by investing in ‘impact funds’
  • They take stakes in and advise firms such as Duolingo, Moderna, Beyond Meat and Tesla, whose disruptive solutions address global challenges
  • If their products and services succeed, their share prices should rise, providing you with superior returns

 

Michelle O'Keeffe and Ed Whitten assess the impact companies have on people and the planet. © Chris Close

 

Please remember that the value of an investment can fall and you may not get back the amount invested.

The prospect of helping the world become a better place while making a solid return on your money might sound too good to be true.

Yet it can be a reality.

You can support companies that aim to be transformational for climate change, education and food, among other issues.

One way to do so is via ‘impact investment’ funds. As the name suggests, these funds only put money into companies with a positive measurable impact.

The Positive Change Fund shows how this works in practice. Edinburgh-based investment management company Baillie Gifford runs it.

The Fund invests money in companies that:

  • contribute to a more sustainable and inclusive world
  • offer products and services that are likely to be adopted because they are better than alternatives


“It’s all about changing the status quo,” says Michelle O’Keeffe, a senior impact analyst on the Fund with expertise in climate change.

“None of the companies we invest in are going to solve the world’s problems on their own.”

“Yet together, they provide a brilliant combination of businesses addressing challenges in a way that excites customers.”

Meat alternatives

Many of the companies held in the Fund are focused on the environment.

The plant-based food producer, Beyond Meat is one example. Its founder wanted to tackle carbon emissions caused by people eating animal-based products when he launched the firm in 2009.

Up to 37 per cent of total greenhouse gas emissions result from the food system, O’Keeffe says, with livestock and the crops they eat playing a role.

“This company offers an alternative which is far kinder to the environment,” she adds.

A study conducted by Beyond Meat compared its products to an equivalent beef burger and concluded they:

  • create 90 per cent fewer carbon emissions
  • require 93 per cent less land
  • reduce water use by 99.5 per cent


“Beyond Meat’s message is smart,” O’Keeffe says. “Instead of telling customers that meat is bad, it offers a great alternative.

“The company works hard on taste and texture, and it wants you to choose it because you like it, not because you feel guilty.”

Another holding is Danish renewable energy giant Ørsted. This business transformed from being an oil and natural gas company to the world’s largest offshore wind developer.

“Its goal is to become a fully renewable energy provider,” says O’Keeffe.

“It’s doing a huge number of exciting things, such as developing floating offshore wind turbines for places where it can't get down to the seabed.

“From a technical perspective, this is ridiculously complicated. But it gives much more capacity for power generation.”

Precision agriculture

Back on dry land, US firm Deere & Co, the maker of John Deere tractors, is among the Fund’s biggest holdings.

It has pioneered digital techniques to reduce the use of chemicals in farming that are responsible for greenhouse gas emissions.

“Machines with cameras and sensors are fitted onto tractors that can identify whether something's a plant or a weed,” says O’Keeffe.

“They then apply the smallest amount of pesticide or herbicide needed for that individual plant.”

The Positive Change Fund also has a stake in the world’s bestselling electric car manufacturer.

Tesla has been successful because it’s built cars that people want to drive,” says O’Keeffe.

“Yet there’s much more to its success. For example, while it manufactures batteries, it also recycles them. This presents a huge opportunity to refine the process from end to end.”

Learning a new language

The companies mentioned so far aim to improve environmental factors. Yet plenty of investments in the Fund target social issues.

DuoLingo is one example. The US-based gamified app teaches languages through free and paid-for subscriptions. ‘Superlearners’ who pay for extra quizzes and add-on features effectively subsidise other users.

It currently offers 41 different languages – and counting.

“It’s a very engaging product,” says Edward Whitten, the Fund’s other senior impact analyst, who has particular interest in firms tackling social challenges.

“We’ve seen its adoption go viral in many countries.

“Learning a new language for some people lets them do jobs that they wouldn’t be able to get otherwise. It raises incomes and the potential for economic growth.”

Another holding, Nubank in Brazil, provides access to basic banking services in Latin America. Many of its customers would otherwise be unable to have a current account.

That means they wouldn’t have a debit or credit card, have no place to safely keep their earnings and be unable to borrow money to improve their lives.

“Nubank provides free bank accounts in a place where traditional banks charge fees, which many can’t afford to pay,” Whitten says.

“It’s impactful because financial services help people become more resilient and self-sufficient. Currently, 50 million customers benefit.”

Brazilian pop star Anitta is on the board of directors at Nubank, Whitten adds.

“Anitta is under 30, which is very rare for a Brazilian board of directors. She’s very passionate about social issues and you can see that in her social media presence.

“It’s valuable to have the voice of the youth at a strategic level.”

Positive Change Fund’s managers play another crucial role – as influencers.

Fund management companies, including Baillie Gifford, can use their influence as large shareholders to take part in what’s known as ‘engagements’.

These range from one-to-one conversations with management to votes at yearly shareholder meetings. And they provide a way to encourage companies to improve their behaviour.

“We take pride in looking after the savings of individuals who want to help drive change,” says O’Keeffe.

“And we want to use the opportunity to help where we can.”

Measure and report

She highlights a common area in which companies need help – determining and disclosing their effects on the world.

“Measuring and reporting impact tells the company, and its investors, the level of good it’s doing,” O’Keeffe explains.

“It also sets a benchmark they can aim to improve each year.

“High standards of impact reporting even help with recruiting the right kind of people. Many workers are looking for a job with a real mission.”

For example, the Positive Change Team has been in touch with Beyond Meat about its sustainability reporting.

“As a very young company, it’s had to develop ways to report the environmental impact of its products among other disclosures,” says O’Keeffe. “That’s where we've been supportive.”

At Tesla's request, Baillie Gifford also provided feedback on challenges around the electric vehicle maker’s reporting of health and safety data, supply chain audits and other matters.

“We raised the point that its first impact report was light on data and encouraged better information,” adds O’Keeffe.

“The next one was much improved.”

Long-term planning

Fund managers also use these interactions to express support for companies’ far-sighted plans. Even if they are likely to put a dent in near-term profits.

“As long-term investors, we are not just thinking about short-term numbers. We want to give companies the confidence that they have shareholders that support the CEO’s long-term vision for maximum impacts,” says O’Keeffe.

One example is Moderna, the pharmaceutical firm put on the map for its Covid vaccine.

“We’ve been talking to management at Moderna to emphasise our support for its global public health plans, including plans to establish a vaccine manufacturing facility in Kenya,” says Whitten.

“That’s not an easy thing to do. It’s going to cost a lot of money and Moderna is going to have to train a lot of people in mRNA technology. That’s very exciting.”

The Fund also has a stake in FDM.

The UK-based recruitment firm focuses on helping people return to work after breaks, often post-maternity leave, as well as those switching careers after leaving the armed forces.

The attention FDM gives to racial, ethnic and gender diversity in recruitment made it an attractive investment. But the Fund’s managers urged it to reconsider one of its other practices.

“Previously, it wasn’t paying trainees,” Whitten explains.

“We made our concern clear to the firm last year, and it finally committed to paying. As one of the voices telling FDM’s management team this is the right thing to do for the longer-term, we were delighted with the move.”

Impact investing is seen as the future by many investors who want to make a difference.

And when “companies succeed in having a great impact,” O’Keeffe notes, “they also increase their chance of maximising returns”.

Analysts

Michelle O'Keeffe

Michelle O’Keeffe
Senior Impact Analyst

Michelle joined Baillie Gifford in 2015 and is a senior impact analyst and decision maker in the Positive Change Team. She graduated BSc (Hons) in Zoology from the University of Cardiff in 1999 and MSc in Climate Change and Risk Management from the University of Exeter in 2009. 

Michelle has a wealth of experience in assessing climate change having worked in the field since 2000. A focus on the long-term sustainability of companies in its broadest sense is therefore a topic Michelle sees as central to investment.

Ed Whitten

Ed Whitten
Senior Impact Analyst

Ed joined Baillie Gifford in June 2018 as a ESG analyst before moving to the Positive Change Fund as an impact analyst in September 2019. Before joining Baillie Gifford, Ed worked for three years in a consultancy advising investors, insurers and corporates on risk management and social impact in emerging and frontier markets.

Prior to this, he spent over five years as an officer in the British Army, latterly working in a cross-government role in Whitehall. He graduated with a BA (Hons) in History from Newcastle University and is studying towards an MSc in Sustainable Development at London’s School of Oriental and African Studies.

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Important information and risk factors

Baillie Gifford Positive Change Fund annual past performance
To 31 March each year (net %)

Past performance is not a guide to future returns.

The manager believes that the MSCI All Cap World Index +2% is an appropriate target given the investment policy of the Fund and the approach taken by the manager when investing. In addition, the manager believes an appropriate performance comparison for this Fund is the Investment Association Global Sector.

There is no guarantee that this objective will be achieved over any time period and actual investment returns may differ from this objective, particularly over shorter time periods.

The Fund invests in companies that make a positive impact on society and/or the environment. This means the Fund won’t invest in certain sectors and companies, limiting the investments available to the Fund. Therefore, the Fund’s returns may be different to those of a fund or trust which has no such restrictions.

Investments with exposure to overseas securities can be affected by changing stock market conditions and currency exchange rates.

The views expressed in this article should not be considered as advice or a recommendation to buy, sell or hold a particular investment. The article contains information and opinion on investments that does not constitute independent investment research, and is therefore not subject to the protections afforded to independent research.

Some of the views expressed are not necessarily those of Baillie Gifford. Investment markets and conditions can change rapidly, therefore the views expressed should not be taken as statements of fact nor should reliance be placed on them when making investment decisions.

Baillie Gifford & Co Limited is wholly owned by Baillie Gifford & Co. Both companies are authorised and regulated by the Financial Conduct Authority and are based at: Calton Square, 1 Greenside Row, Edinburgh EH1 3AN.

The investment trusts managed by Baillie Gifford & Co Limited are listed on the London Stock Exchange and are not authorised or regulated by the Financial Conduct Authority.

A Key Information Document is available by visiting bailliegifford.com

 

21426 10010244

Author

Holly Thomas

Holly Thomas is a freelance financial journalist. She writes across all areas of personal finance, specialising in investments. Holly’s work can be seen in The Times, The Sunday Times and the Daily Mail. Previously she worked as Deputy Personal Finance Editor at The Sunday Times, Money Editor at the Daily and Sunday Express and also at Financial Times Business.

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