EQ Guide: EQ Positive Impact Review 2012-2017
In our first five-year review of the Positive Impact Portfolios we take an overall look at their achievements in delivering social, environmental, and financial returns.
It has been five years since EQ Investors launched its Positive Impact Portfolios and they have been a terrific success, both in terms of popularity and performance. The portfolios have attracted more than £40 million in assets under management (AUM) since launch. This growth has come from significant performance gains as well as capital inflows. Clearly, the prospect of being able to tackle social and environmental challenges while making a profit is an attractive one.
Impact investing is an evolving field, and we are constantly seeking to improve our own methodology for screening and selecting impact funds. The latest development in our own approach has been to adopt the UN Sustainable Development Goals as a framework for identifying and reporting on impact. The Goals shine a spotlight on some of the world’s biggest challenges and provide focus and clarity on what is required to meet them. They represent a huge opportunity for forward-looking and innovative companies – just the type we want to capture within the portfolios.
In this report we show how the products and services of companies within our portfolios align with the 17 Goals, and provide a range of examples to show how progress is being made. We were also keen to look at reported data across all of our holdings, and while finds here are preliminary we have encouraging data to share in relation to three themes: growth, climate change and innovation.
For the first time we can present clear evidence to support our hypothesis that investing in companies making a positive impact should be good for returns. Whether you look at revenues or profits, companies held by the EQ Positive Impact Portfolios are growing significantly faster than the FTSE 100 companies. Over the last five years companies in our Balanced portfolio have on average grown their revenues by 48% (annualised at 10.3% per year). Meanwhile revenues for companies in the FTSE 100 Index have on average fallen by 2%.
The data around growth in numbers of employee also points to healthy levels of job creation. Companies in our Balanced portfolio have grown in terms of number of employees by 39.4% since 2012 (annualised at 8.7% per year). This reinforces our view that these companies are making a positive contribution to society.
On carbon emissions our Balanced portfolio emitted 62 tonnes of CO2 less than the FTSE 100 Index per £1 million invested (based on available data). Our companies also sourced on average a significantly higher proportion of their energy from renewables. In future we look forward to filling out this picture by including emissions avoided by our companies through their products and services.
Innovation is central to achieving many of the Goals and a congruent picture emerges when looking at company spending on research and development. Companies within the Positive Impact Portfolios have invested heavily in this area, increasing their average spend by 37.4% since 2012. This compares to virtually no change (−0.1%) in average spend for the FTSE 100 companies. Our portfolio companies are also spending consistently more as a proportion of revenues than companies in the FTSE 100 (4.3% versus 2.8% on average).
Going forward, engagement with our fund managers will continue to play a crucial role in helping us to improve the quality of impact data. This engagement has a dual benefit in giving us a voice to influence voting at annual general meetings. We have seen positive results from this engagement, e.g. in encouraging utilities to invest more money in renewables.