There are numerous models to measure the positive impact of an investment that go well beyond simple ESG attributes.
However, as the impact investing industry continues to grow, it is unlikely we will see a widely adopted measure of positive impact as an industry standard for some years.
This makes it difficult to assess the overall market positive impact created by capital allocations into those assets that are considered to be impact investments.
Despite not being able to effectively measure the entire positive impact of the impact investing industry, we are able to measure the returns of sectors considered to have impact investing attributes.
By comparing these returns against the benchmark and sectors that are considered to provide a negative impact, it enables us to gauge impact investing appetite and provides and indication of where capital allocation is making a positive impact.
When looking at listed companies, we adopted a broad top-down approach to S&P 500 sectors to illustrate the difference in returns. It must be noted this may overlook activities of individual companies included in sectors not classed as making a positive impact and vice versa.
Positive Impact Sectors
| S&P 500 Industry | 1-year Return | 3-year Return |
|---|---|---|
| Renewable Electricity Producers | +7.65% | +105.04% |
| Biotechnology | +14.78% | +25.49% |
| Healthcare | +16.89% | +46.41% |
| Road & Rail | +16.94% | +69.75% |
*correct 12/2/2020
Negative Impact Sectors
| S&P 500 Industry | 1-year Return | 3-year Return |
|---|---|---|
| Air Freight & Logistics | -6.74% | -4.37% |
| Tobacco | +3.38 | -24.86% |
| Oil & Gas | -9.88% | -16.33% |
| Mining | +12.7% | -3.37% |
*correct 12/2/2020
From the sector returns above, it is easy to see there has been a natural outperformance of those sectors associated with a positive impact.
Unethical sectors or big contributors to have not only underperformed positive impact sectors, but the overall market.
There are of course limitations to this top down comparison of these sectors. It only identifies outperformance doesn’t analyse broader drivers of market moves in these sectors. For example, oil prices plummeted in early 2020 due to coronavirus and tobacco use has been in decline for some years.
Despite this, it is clear investors have been allocating capital to sectors that provide a positive impact at a higher rate than those that don’t, and in some cases, investing in some positive sectors can lead to outperformance of the market.
This is an area that will be explored in detail at the Impact Investing & Circular Economy Conference, providing deep insight into the factors driving the impact investing industry forward.