From the blog: Simply put, ‘impact investing’ is an investment philosophy that focuses on investing in companies that create beneficial outcomes for society and the environment.
It takes ethical investing one step further, because it seeks out investments with positive and measurable impact.
In a world with a population of 7.5bn people and soon estimated to be 9bn, there are extraordinary challenges in ensuring economic prosperity is sustainable and available to all while also treading lightly on essential ecosystem services.
In a world with a population of 7.5bn people and soon estimated to be 9bn, there are extraordinary challenges in ensuring economic prosperity is sustainable and available to all, while also treading lightly on essential ecosystem services.
The scale of these challenges is a threat to ‘business as usual’ but there are also many opportunities to be found in solving the problem. For pension funds and their fiduciaries, sustainability themes can be used as an investment lens for finding companies exposed to structural growth.
It is increasingly accepted by asset owners and other market participants that sustainable business and strong investment performance are more likely to be bedfellows than at odds with each other.
Fiduciaries increasingly recognise the need to consider issues like climate change and resource depletion as a source of risk to conventional benchmark returns. Equally, these issues can represent a source of potential investment return as the market shifts to new lower impact, more efficient technologies and business models.
Impact investing can be a helpful prism through which to analyse portfolio exposure in a way that is focused on the future trajectory of markets.
The problem has been that these issues, and the practice of impact investing, have been too loosely defined to be useful, but there is now an emerging series of standards and approaches that provide a framework against which to measure and report.
For instance, the G20’s Task Force on Climate-related Financial Disclosure, led by Michael Bloomberg and backed by Mark Carney, provides a clear way for companies including asset managers and owners to report, so that their investors, lenders and insurance underwriters can better assess and price climate-related risks and opportunities.
The UN’s Sustainable Development Goals initiative promotes long-term and sustainable prosperity and economic security. Using the 17 SDGs, it is possible to map the products and services that companies provide that contribute to the attainment of these goals, including affordable and clean energy, good health and wellbeing, and clean water and sanitation.
These frameworks give pension funds and fiduciaries the tools to report positive social and environmental outcomes and manage the implications for long-term risk and return.
Seb Beloe is head of research at WHEB Asset Management
