What are your investment goals?

At Talis IFA, we’ve seen some increased interest over recent years from clients who want to know more about exactly where their money is going, and what impact it’s having.

We wrote recently about investing in start-ups, through SEIS and EIS investment, for example. Investing in start-ups is one way of being able to see the direct impact of your capital, and potentially to get involved in a more direct capacity. It also carries some tax relief benefits, but it comes with quite a high level of risk, and isn’t for everyone.

So if one of your investment goals is to make an impact and ‘do good’ with your money, what do you need to consider?

Here we take a look at some of the options, challenges and approaches.

Corporate Social Responsibility (CSR)

This term is falling out of circulation thanks to the more widely used ESG (see below) but it does capture the idea of being a good corporate citizen.? It is not unusual to see larger companies supporting the local community around their head office, for example, and many of the world’s biggest companies will actively measure their positive impact on the world.? This can include how they treat suppliers as well as customers and all the other ‘stakeholders’ that come into contact with that organisation.

Impact investing

Impact investing is a deliberate investment strategy which aims to use investment capital for positive social or environmental effects, as well as generating a financial return.

Investors who favour impact investing will typically consider a company’s CSR commitment alongside a range of other measurements.? These might include their performance against social and environmental targets, and ensuring transparency and accountability in board decisions, for example.? The exact form this takes varies, and can span a wide range of industries but is often associated with:

• ? ? ? Healthcare
• ? ? ? Education
• ? ? ? Energy (particularly clean and renewable energy)
• ? ? ? Agriculture

Environmental, Social and Governance (ESG) factors

Measuring ESG factors is a way to support and encourage responsible practices which should in turn contribute to a more sustainable future.? Companies’ operations are scrutinised according to:

• Environmental factors such as energy use, sustainability policies, carbon emissions and resource conservation, often demonstrating a commitment to reducing their ecological footprint.
• Social factors such as how a company treats its employees and interacts with the communities in which it operates, demonstrating strong social values and prioritising employee welfare, workplace safety and community engagement.
• Governance factors relating to a company’s leadership, management and overall corporate structure. Key considerations include executive compensation, audit processes, internal controls, board independence, shareholder rights and transparency.

Companies with robust governance structures are more likely to be accountable, trustworthy and better prepared to manage potential risks.? It would be difficult to deliver on the ‘E’ and ‘S’ without first scoring highly on the ‘G’.

Adopting an ESG-focused investment strategy may help to align your portfolio with personal values as well as leading to long-term financial benefits, as ESG-focused companies are often better equipped to navigate evolving regulations, mitigate risks and capitalise on emerging opportunities.

The challenges for ethical investing

Whilst ESG investing has gathered interest with investors seeking to align their portfolios with ethical values, it is not without pitfalls. The ESG categories lack clear definition, and are open to interpretation, leaving scope for ‘greenwashing’ (where a company or fund markets itself as environmentally friendly or socially responsible without really meeting the standards) and making it difficult to be certain about whether a portfolio truly aligns with an investor’s values.??

It’s also incredibly subjective – one person’s ‘ethical’, perhaps because of robust recycling policies, could be another’s ‘unacceptable’, because of views around, say, meat products.

How to approach impact or ESG investing

Your first step is to discuss your objectives with an IFA who can help you define what it is that you want to achieve with your money and gain clarity on whether an impact or ESG investment strategy is right for you.

You’ll need to be clear about your values and priorities, and your IFA will then be able to recommend an appropriate portfolio of investments.

Arguably, taking the advice of an experienced IFA is even more important when you’re looking for investments that align with your values, as they will help to ensure that you diversify your investments to mitigate the risk of inadvertently supporting unethical business, whilst also steering you away from companies or funds which might appear to be a good option on the surface, but which don’t, in reality, align with your goals.

Philanthropy

Finally, if the impact that your money could have is more important to you than the financial return on your money, you might want to consider the philanthropic approach.

Philanthropy refers to charitable acts that help others, or contribute to the wellbeing of communities. This can mean donations of money, often large sums, to support community or environmental charities and projects, or to fund research, education or the arts.

There are many ways to make charitable donations – on a local through to a global scale – including through corporations. They include setting up not-for-profit organisations or private foundations as well as supporting existing organisations, and there may be some tax relief to be gained on certain types of donations. Leaving part of your estate to charity in your Will can also help to reduce your inheritance tax (IHT) liability.

The tax relief you’re entitled to will depend on the way that you give money, who to, and how much, so it’s important to talk to your IFA in order to understand the specifics.

Talis IFA has 30 years’ experience of helping people to clarify their investment goals, guiding them through the options and defining their investment strategy. We give straight-talking advice in plain English, helping you to understand the world of investment and to make the right decisions for you.

Click here to find a Talis IFA.

THIS ARTICLE DOES NOT CONSTITUTE TAX OR LEGAL ADVICE AND SHOULD NOT BE RELIED UPON AS SUCH. THE VALUE OF YOUR INVESTMENTS CAN GO DOWN AS WELL AS UP AND YOU MAY GET BACK LESS THAN YOU INVESTED. THE TAX TREATMENT IS DEPENDENT ON INDIVIDUAL CIRCUMSTANCES AND MAY BE SUBJECT TO CHANGE IN FUTURE. FOR GUIDANCE, SEEK PROFESSIONAL ADVICE.