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10 impact investing funds to invest in for positive change

Impact investing is about making returns while also putting your money into companies that are having a positive impact on issues you are passionate about. Learn what impact investing is, whether it is effective, how to get started, and discover some of the top impact investing ETFs to watch in the UK.

What is impact investing and is it effective?

Impact investing is putting your money into investments that are expected to have a positive impact on the world or a specific issue, but where you also want to make a return.

Impact investing is part of the Environmental, Social, and Governance (ESG) movement, which avoids investing in companies that damage the environment, or mistreat employees or customers. Socially responsible investing (SRI) takes this a little further and avoids the above companies but also only invests in companies that are responsible and attempting to do good. Impact investing is a further subset where the investor picks one or several causes they are passionate about and invests in companies that are trying to have a positive impact in these areas.

Impact investing can produce solid returns, although performance generally tends to be slightly below non-impact market averages. A study by the University of California​ found that while non-impact funds returned an average of 7.4% per year, impact funds returned 6.4%. Certain impact funds may outperform, while others may underperform. Like any investment, returns will vary. These returns are based on passive investing, also known as buy-and-hold.

The effectiveness of impact investing is questionable. Buying one stock instead of another doesn’t affect the companies in question. The impactful company doesn’t benefit directly, nor is the unimpactful company hurt. But some investors may sleep better knowing they are invested in companies that align with their own personal values.

Top 10 funds for impact investing

Impact investing is an emerging field, so there are very few ETFs focused specifically on impact investments. But those that want to focus on specific types of investments can utilise ESG or SRI ETFs, since these funds only invest in companies that are socially responsible and/or are have a positive impact on certain issues.

Here are 10 of the top impact investing funds listed on the London Stock Exchange, based on listed fund size. The asset management figures are sourced from JustETF and are up to date as of May 2022.

In the UK, there is currently only one specific impact investment, as below. The next nine funds focus on different areas of the ESG ETF universe. Investors who are passionate about a particular theme could use ETFs like these to accomplish their impact investing goals.

Rize Environmental Impact 100 UCITS ETF [LVNG]

This fund is priced in US dollars and tracks 100 global companies that are leaders in developing and implementing climate solutions to protect the environment. The fund, formed in July 2021, is accumulating (dividends are not distributed, but automatically reinvested into the fund), and has about £11m net assets under management (AUM).

iShares Global Clean Energy UCITs ETF [INRG]

This fund invests in clean energy stocks, such solar, wind, and electric vehicle charging companies. This ETF falls into the impact investing climate category, as the fund avoids companies involved in the fossil fuels industry, which has links to climate change. The fund is distributing, was formed in 2007, and has roughly £4bn of assets under management.

iShares Automation & Robotics UCITS ETF [RBTX]

This fund invests in companies that meet ESG criteria and that are involved in the automation and robotics industries. While robotics and automation may not seem like an impactful area, it can be. Robotics is being used to improve efficiency with surgeries, and is also used to create artificial limbs for those that need them. This is an accumulating fund formed in 2016. It has roughly £3bn net assets under management.

iShares MSCI USD SRI UCITS ETF [SUAS]

This fund invests in a wide array of US companies but does not include companies with exposure to the fossil fuels industry. This may be suitable for someone interested in climate impact investing. The fund is accumulating, was formed in 2016, is priced in USD, and has near £7bn assets under management.

UBS MSCI World Socially Responsible UCITS ETF [UC44]

This fund invests globally, providing diversification benefits to investors. It also avoids companies that generate a significant portion of their revenue from non-sustainable activities, and seeks out companies with low carbon footprints. This may appeal to climate impact investors. The ETF is distributing, was formed in 2011, and has £3.1bn assets under management.

iShares Healthcare Innovation UCITS ETF [DRDR]

This fund’s investment strategies​ revolve around healthcare companies that are making medical breakthroughs and that also meet social and environmental responsibility criteria. This fund may appeal to someone investing for impact in the healthcare or disease prevention and cure industry. This ETF is accumulating, was formed in 2016, and has £1.5bn under management.

Lyxor MSCI Water ESG Filtered UCITS ETF [WATL]

This fund invests in stocks in the water industry, and all holdings are filtered for ESG criteria. This fund may appeal to people who are interested in impact investing agriculture or impact investing climate, as water is an integral part of the planet for drinking, sanitation, watering crops, and for use with livestock. The fund was formed in 2007, is distributing, and has £1.1bn under management.

iShares Dow Jones Global Sustainability Screened UCITS ETF [IGSG]

This is a broadly diversified fund, holding 2,500 of the world’s largest and most sustainable companies. It avoids companies associated with alcohol, tobacco, gambling, ‘war’, and adult entertainment. It is an accumulating fund founded in 2011. It has £533m under management.

Lyxor MSCI China ESG Leaders Extra UCITS ETF [ASIL]

The Chinese economy has seen extraordinary growth in recent decades, but many impact investors avoid China because of concerns over corruption, child-labour, harsh working conditions, pollution, and other issues. This fund invests in mid-to-large Chinese companies that meet ESG criteria and that are showing a positive trend/improvement in ESG parameters.

Since China has such a large impact on the global economy, this may be attractive to investors looking for international exposure but that are also concerned about climate, agriculture, education, human and labour rights, and more. The ETF was formed in 2005, is accumulating, and has £225m under management.

Rize Education Tech and Digital Learning UCITS ETF [LRNG]

For investors interested in impact investing education, this fund is an option. It invests in companies that offer education technology and online learning, but also screens the companies for ESG criteria. This fund is small, with only £10m under management. It is also new, having formed in 2020. It is accumulating and priced in USD.

How to start impact investing

Here are steps on how you could start impact investing and putting your funds toward causes that are important to you.

  1. Consider what types of global or domestic issues are important you. Also decide if now is a good time to invest for you​.
  2. Search for investments related to these issues, such as keywords like ‘climate’ or ‘ESG’.
  3. Write down the names of ESG investments​ you are interested in.
  4. Decide how much you will invest in each. Consider what other investments you have as well. This is called your asset allocation.
  5. If you want to invest in individual companies that are having an impact, go through the same process and understand how to invest in stocks​ before proceeding.
  6. Monitor to see how your investments do over time and adjust accordingly.
  7. Consider how risk-management will come into play and how to protect your capital. All investments come with risk, so it’s necessary to address how much you’re able to invest or be willing to potentially lose.

FAQs

ESG vs impact investing: what’s the difference?

ESG stands for environmental, social, and governance, and refers to how responsible the company is when it comes to social and environmental issues. Impact investing is a sub-category of ESG, with impact investments highly focused on improving one specific issue. Learn more about how to invest ethically.

How do you measure impact investing?

Impact investments are assessed based on whether the investment is actually creating positive change in the desired area. This requires that the investment has some goal or benchmark it wants to achieve. Investors also want to see a return on their money.


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