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How impact investing could provide a solution to social challenges

27/04/2024

Do you want your investments to have a positive effect on the world and society? Allocating some of your wealth to “impact investing” could be right for you. Read on to find out what impact investing is and what you need to consider first.

Impact investing aims to generate a positive, measurable social or environmental impact alongside a financial return.

As society faces many challenges, such as alleviating poverty, reducing greenhouse gases, or improving access to healthcare, a huge amount of investment is needed. And targeted investments from individuals could add up to deliver real change.

2 difficult challenges the UK faces that impact investing could help solve

One of the benefits of impact investing is that it focuses on particular issues. So, as an investor, you can target those that you’re passionate about. Here are just two examples of social challenges in the UK that could benefit from investment.

1. £7.7 billion is needed each year to meet care demands

The UK faces significant challenges in meeting care demands.

As people are living longer lives, more will need to rely on care in their later years and a growing number will have complex needs. As public services struggle to meet this demand, private investment could help provide the facilities, skills, and services that society will benefit from.

Earlier this year, the Guardian reported on a significant government shortfall in care funding. It suggested there is a £2.3 billion-a-year hole in the finances of the care system, which currently looks after almost 200,000 people aged over 65.

A report from Schroders suggests the care sector will need investment of £7.7 billion a year to meet long-term demand. Investment in areas like care homes, support services, and medical technology, could help to relieve some of the pressure.

2. £16.9 billion is needed each year to tackle the housing crisis

The housing crisis is another challenge that features heavily in the news. A housing shortage and soaring prices mean many families are struggling to find affordable homes.

A government report suggests around 340,000 new homes need to be supplied in England each year, of which 145,000 should be affordable. However, new homes have fallen significantly short of this goal – around 233,000 new homes were built in 2021/22.

To tackle the challenge of housing in the UK, Schroders suggests £16.9 billion of private investment will be needed every year.

Measuring the impact in impact investing

While impact investing can be attractive, one of the key challenges for investors is it can be difficult to measure and verify the success.

Investment opportunities may provide you with data on past success and goals for the future. However, as there is no standard way to present this information, it can be difficult to compare the options.

On top of this, there isn’t an independent body that will verify the impact the investment is having and it could mean you’d need to carry out your own research if you wanted further information.

So, if you want to be part of impact investing, it’s important to note that it may not generate the impact desired and it could come with challenges too.

It’s essential to balance impact with your investment goals

Impact investing isn’t just about solving some of the world’s biggest challenges, but delivering a return too. You should still treat it like other investments, which means considering areas like risk and potential performance.

If you’ve found an impact investing opportunity that’s interesting, you may also want to consider:

• The investment time frame: Usually, it’s advisable to hold investments for a minimum of five years as they can experience short-term volatility. Consider if this matches your investment goals and whether you’d feel comfortable holding the investment over the long term.
• Whether it matches your risk profile: While all investments carry risk, the level varies. So, when you’re looking at a new investment opportunity you should weigh up if the risk involved is right for you. Your risk profile should consider many factors, from your overall financial stability to the reason you’re investing. If you’d like to learn more about risk profiles, please contact us.
• How it could fit into a wider investment portfolio: You may also want to consider what other investments you hold, and how the new opportunity could fit into your portfolio. Creating a diversified, balanced portfolio with your risk profile in mind could reduce volatility and help you reach your goals.

Do you want to talk about the impact your investment could have?

If you want to discuss whether impact investing could be right for you, please get in touch. We can talk about the issues you’re interested in and how you could use your finances to tackle challenges in a way that reflects your goals and financial circumstances.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.