Environmental impact investing in equities has moved from a niche strategy to the mainstream in recent years. But what exactly are environmental equities, their current valuations and the opportunities available in this sector?
Victoria Leggett, Head of Impact Investing at UBP discussed these topics on a recent Asset TV broadcast with other industry experts.
Impact investing has been around for over 20 years, but only really moved into the investing mainstream quite recently. Along this journey, it has become more diverse, more dynamic and certainly more global. Much of this evolution is driven by investors and consumers, who are becoming more aware of the social and environmental impact of their decisions. The other driving force behind impact investing is regulation. While in the past impact investing consisted mostly in a niche allocation into growth opportunities, it has developed into a fully-fledged specialisation that analyses multi-year and even multi-decade trends, thereby encouraging investors to adopt a more long-term investment outlook.
What’s important to understand is that impact investment is less about exclusions, and more about actively investing in companies that pursue a specific impact agenda. Contrary to what many people believe, this is possible in a broad range of sectors because the need to use resources more efficiently is common to any type of business activity.
As Victoria explains, in most cases the companies that get selected for UBP’s impact strategies are innovators and beneficiaries of current or future regulatory changes. They are companies that cater to strong bottom-up demand and contribute to environmental and social issues through their revenue streams, thereby offering superior investment potential.
Last year provided us with many examples of this, as it turned out to be an exceptional year for impact strategies in terms of performance, especially in the renewable energy sector. Further key areas of interest for impact investors are in disruptive business such as online education and online healthcare.
According to Victoria, what matters most in stock selection is the company’s “impact intensity”. This is best assessed by examining the ‘materiality’ of the impact and a company’s intentions for the future. By looking at planned capital expenditure, for instance, we can gain useful insights into where its future revenue streams will come from.
In conclusion, over the long term, growth in impact is expected to be strong, and the opportunity set much broader than many people assume.
Victoria Leggett
Head of Impact investing
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