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Dan Atkinson: Managing Money’s Impact

One of the goals that many financial planners have is to help people see their money as the means to achieve their life goals.

But for a growing number of people, it’s not enough to simply align their money with their life goals. They want their buying decisions to reflect their desire to impact the environment and the people around them. This might be as simple as avoiding single use plastics or having a reusable coffee cup. Alternatively, some of us might consider having an electric or hybrid car, use a ‘green only’ energy supplier, or perhaps going ‘off-grid’ completely.

Our buying decisions have a global impact – do our money decisions have one too?

So how does wanting to help the world translate to the way we do financial planning with our clients? Should we view our investments as something abstract and disconnected with the rest of our lives? To an extent, yes, investments are a means to an end. Investments need to do their job of providing financial freedom and funding to achieve our life goals.

However, if we are thinking about our global impact when we purchase goods or services, why shouldn’t we consider it when investing?

When we make an investment (directly or collectively via a fund) we are either buying equity or funding debt for a company seeking to grow. If we consider the impact our decisions have when buying coffee and cars, it would be inconsistent to ignore this when investing.

Aligning Clients’ Money with Their Global Impact

At EQ Investors, we decided to address the need to be globally minded when we invest as part of our financial planning process.

We know there can’t be any compromises in terms of how we manage investment risk and select the most suitable funds for our clients. We also know that a ‘see no evil’ approach wouldn’t cut it. Our clients don’t want to just invest in the ‘least bad’ companies in an industry – they want to effect real change. The best term for this approach is Impact Investing.

The Global Impact Investing Network (GIIN) says that “Impact investments are investments made with the intention to generate positive, measurable social and environmental impact alongside a financial return”.

This isn’t an area to enter into lightly and it’s important to test the genuineness of the increasing number of propositions. Is the team managing the portfolio genuinely interested in achieving impact and financial returns, or are they primarily a completing a ‘greenwashing’ marketing exercise? Equal attention must be given to investment performance and the impact a fund delivers.

Measuring Impact

As financial planners we know that it is important to measure progress. If we considered investing without reviewing performance, we would be laughed out of town. We think the same thing about Impact Investing.

The same level of rigour and reporting regarding investments should be expected by clients who are concerned about their global impact. Setting out to have a positive impact on the world around us is a great start, but unless you follow through and achieve it – why bother? For us, it’s not good enough to just say we’ve done ‘good’ – we need to quantify it.

In 2015 the United Nations set out 17 Sustainable Development Goals. They represent the big issues that the nations have agreed to work together to address by 2030. So, we can identify which goals the funds in the portfolio are working towards. This is a popular approach and a number of fund managers are using this framework.

For each of the UN Goals we liaise with the fund managers to obtain data from the underlying companies. We also work with fund managers and institutions to help them improve the way they gather and analyse this information. This information is analysed by our in-house Impact Specialist, who works alongside our portfolio managers, to produce our Annual Impact Report for clients.

Communicating Impact

Cashflow modelling and Impact Investing both increase the connection that a client has with their money. Sometimes, a purely data driven approach isn’t the best way of establishing this connection. One technique is to pick out a holding that has had an impact and explain to the client what that company is doing.

For example, recently we told clients about a company called Lenzing who are innovators in the textile industry. This can be a very water and chemical intensive industry, but the work they have been doing means that they reuse 90% of their chemicals and use significantly less water. They are also working on other ways of challenging our throw-away clothing culture. Our clients helped fund this through their investments in the FP Wheb Sustainability fund.

We have combined these approaches to create a series of measures that help clients visualise the impact that their money is having. Six measures focus on the environmental impact that the investments are having (e.g. waste material recycled) and six focus on social impact (e.g. number of patients treated). Some measures can be quite abstract, so we contextualise them using more identifiable quantities (e.g. water saved in terms of the water usage of a typical household).

Sharing the Opportunities

Impact Investing has grown significantly from a niche area dominated by large institutions to something that is accessible to all. We’ve seen significant interest in impact investing in our business, that of other advisers, and the financial press. We don’t just want to see our clients being able to access impact investing. We are working with a growing number of financial adviser firms across the UK to help them offer impact investments to their clients.

As financial planners, we think this is an exceptionally exciting opportunity to provide clients with a more holistic connection with their money. We are rigorous about client goals and we can also be rigorous about matching their investments to their values.

If you would like to talk further about how EQ Investors could work with you to help your clients do this, please visit our website and get in touch.

Dan Atkinson headshot
Courtesy of Dan Atkinson

Dan’s degree Music Technology degree helps him approach Financial Planning problems creatively. He is both a Chartered Financial Planner and a Fellow of the Personal Finance Society (PFS). Dan is an Accredited Paraplanner™ with CISI and is working towards the Certified Financial Planner™ certification. Having won several awards in his field, Dan continues to work with CISI and other organisations to support others involved in this area of Financial Planning by writing articles, and hosting conferences and events.

Outside of the office Dan is married to Hannah and has a young daughter who keeps him on his toes. He is also involved in his local Church in Hatfield.

The views expressed in this article are that of this author and do not necessarily reflect the views and opinions of Voyant.