Impact portfolios: What are they and why do they often defy recessions?

Research published in April 2025 by the FTAdviser suggests that impact investment portfolios could be well-positioned to defy recessions. Read on to find out what impact investing is, and which characteristics could help deliver long-term returns.

Impact investing aims to generate a positive social and environmental impact

While impact investors still seek to secure a financial return, they also invest intending to generate a measurable positive impact on society and the environment.

Often, impact investors will consider a company’s corporate social responsibility report and how their aims could serve society as a whole. The focus of impact investing and the criteria can vary significantly. For example, an impact investing fund may invest to promote sustainability or provide essential health services to communities.

It’s an investment strategy that can involve different asset classes, such as stocks, bonds, or mutual funds.

Impact investing is similar in some ways to ESG investing, where issues across three areas – environmental, social, and governance – are considered alongside financial ones. However, a key difference is that impact investing aims to have a measurable impact, and investors may be willing to forgo some financial return in exchange for achieving these aims, though this is not always the case.

Impact firms could be better positioned to weather a recession

While impact investors may be focused on non-financial outcomes, research published in FTAdviser actually suggests that impact firms could be better positioned to weather a recession.

Indeed, analysis of more than 250 firms found that impact firms performed better during a recession by around 0.6% when compared to expansion businesses. While there were times when impact firms underperformed, during a recession, they typically outperformed the benchmark. The findings suggest that impact firms could be less sensitive to economic downturns.

The research noted there are limitations to the data gathered. However, it identified three reasons why impact firms might be well-suited to defying downturns.

1. Sectors attractive to impact firms could provide protection

Many impact firms operate in sectors with defensive characteristics during a recession. For instance, businesses operating in healthcare or industrials may find their operations are less affected by an economic downturn than other sectors.

However, this reason could also present challenges to investors when diversifying. To create a balanced portfolio, you typically want to invest in a range of assets, sectors, and geographical locations to spread investment risk. So, if you invested heavily in impact firms operating in a particular sector, you could inadvertently take more risk than you anticipate.

2. They are often addressing global challenges

The research findings also noted that impact firms are focused on addressing global challenges, which typically remain, even during periods of downturn. While they’re likely to still face obstacles, they could be shielded from some of the effects of a recession.

3. They may be more focused on long-term growth

Finally, impact firms seek to have a long-lasting positive effect on society, and so may make decisions that will support long-term growth. For example, they were found to operate with stronger margins, expand their workforce quickly, and actively deploy capital.

In addition, they’re likely to hold lower cash reserves, instead, favouring higher asset tangibility, and may be involved in raising capital more frequently.

This approach could mean they’re in a better position to overcome recession challenges.

Impact investing isn’t the right option for everyone

Impact investing can be an attractive option if you want your money to do good while still delivering long-term returns. However, it’s important to note it isn’t the right option for everyone.

It’s still important to assess if investment opportunities align with your wider financial goals, circumstances, and other investments. Investment returns cannot be guaranteed, and assessing the level of risk before pursuing an opportunity is essential.

Get in touch to talk about your investments

If you’re interested in learning more about impact investments or have questions about your portfolio, please get in touch. 

Please note: This blog is for general information only and does not constitute financial advice, which should be based on your individual circumstances. The information is aimed at retail clients only.

The value of your investments (and any income from them) 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.

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.