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Future of Impact Investing
Blended finance solutions and Pope Francis’ vision of ‘putting the economy at the service of peoples’ P6 Sir Ronald Cohen, the father of social investment is planning a revolution P10 IMAGE: VATICAN MEDIA
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Director of Pensions for Purpose shares insights on riskadjusted returns, competitive edge and financial deliverability
The £130bn opportunity that industry could be missing out on.Charlene Cranny talks Julia Roberts,wealth creators and investor confidence P9
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UN Assistant SecretaryGeneral outlines how we can support the development of ecosystems and align capital for a better humanity P10
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Interest in impact investing is growing – rapidly The impact investing market is at an exciting point in its evolution, and there is strong momentum. This powerful practice of impact investing — of channelling investment capital toward companies, organisations, and funds that deliver social and environmental impact alongside financial returns — is experiencing impressive growth. New benchmarks are making investment successes easier to measure There is growing activity on six continents, with assets under Follow us
management increasing by 13% per year over the last five years, according to respondents of the GIIN’s 2018 Annual Impact Investor Survey. There is growing client demand, growing attention from world leaders, government bodies, and the media. Fund sizes are growing. There is also a growing body of useful research, including benchmarks on financial performance, and case studies of successful investments in areas such as affordable housing, microfinance, renewable energy, and community investing. Overwhelmingly, impact investors report their investments meet or exceed their expectations for both financial and impact performance. MediaplanetUK
The current financial system is not serving our planet, people or investors But we are not yet seeing the radical shift we need in order to reshape the capital markets and redirect investment toward some of the greatest challenges facing our world. Global problems are outpacing our solutions. The current financial system is not adequately serving the planet. It’s not serving people. And it’s not serving investors. Impact investing is a powerful solution, but it’s not being applied at scale. We see elements of impact seeping into the broader financial markets, but it isn’t happening fast enough. The challenges the world faces @MediaplanetUK
Amit Bouri Co-Founder and CEO, Global Impact Investing Network
are very real, very powerful, and very urgent. Philanthropists and government aid need impact investors We urgently need much more capital working alongside government aid and philanthropy, flowing to resolve the world’s most pressing social and environmental problems. Right now, we have an incredible opportunity to build an inclusive and sustainable world where everyone has come to understand the full power of their investment capital, and where investment capital has been transformed into a global force for good. @MediaplanetUK
I believe we can build a world where money does more than just generate more money. Where it is standard practice for all investors to consider the social and environmental impact of their investments. A world where impact is integrated into all financial decisions. This is the future of impact investing. And this is the future we can build together. Diane Priestley
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Minerva Analytics is the UK’s independent sustainable governance research and voting service. Minerva supports institutional investors, including pension funds, asset managers, and consultants with objective research, ESG data, bespoke voting policies and confidential proxy voting for global companies. Minerva: helping you vote your values For more information, please say hello@minerva-analytics.info or visit us at www.minerva-analytics.info
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Ambitions for impact investing: climate mitigation, gender inequality and global stability Andrew Pidden Managing Director and Head of Sustainable Investments, DWS
Over the past ten years, there has been a growth in awareness around impact investing from large financial institutions who have historically not invested in this dynamic and critical space. This is leading to an opportunity to grow the assets invested in impact funds to a multiple of what has historically been the case. But is this a good thing? And can such growth occur without the danger that ‘greenwashing’ will tarnish the reputation of impact investing in the way that it threatens the explosive growth of green bonds today?
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s an investment group with over 20 years’ experience in impact investing, the Sustainable Investments group at DWS has been a part of this growth journey. From lending small loans from small funds to small microcredit groups in developing and distressed economies in Central Asia, Latin America and Africa, we have enabled these groups to grow and, thus, improve their lending and impact-monitoring capabilities. Our teams have persisted through political and economic turmoil in many regions out of a belief that this lending and investing is never more important than when individuals
in distressed countries, who are determined to create a better future, have to look for funding outside of their own financial system. Along this journey we have learned difficult but valuable lessons. We know it is vital to partner with local financial institutions, and that it is important to have our own people in the regions (or visiting regularly). We have learned to try specific investment focuses on small and medium enterprises, agriculture or health to generate specific impacts that are not being served by more generic microfinance. We need bigger investments to scale growth Now, we have a different problem; raising funds that are large enough to service the global growth in microfinance and impact outcomes. This requires a new cohort of investors, away from the traditional route of major development finance institutions (DFIs) and the – mainly US based – Foundations and Family Offices, all of whom have been the backbone of the impact community to date. The global financial crisis has had one welcome outcome – a selfexamination of the role of investing by many major financial institutions, which has created a much greater awareness of impact investing and its unique role to create outcomes and relevant financial returns for investors at the same time.
As an impact investment group based inside a large asset manager, we are asked more and more often to visit and educate many of our existing and prospective clients about more traditional products. These clients ask us to discuss our experience in the impact space and how they can consider it as an asset allocation opportunity. This is both exciting and challenging. The most common issue is the need to separate their perception of ESG (Environmental Social Governance) from impact. ESG is a screening process to avoid harmful outcomes from investing, whereas the objective of impact investing is to create positive outcomes from investing. Then there is a very important need to prove such impacts can occur through investments that can generate returns and the capital can be realised and returned in an appropriate time frame. Of course, this must occur while preserving and supporting the impacts created or more harm will occur than good. We need to be open-minded to create a better global financial system The growing and widespread awareness of the UN Sustainable Development Goals has helped immeasurably to create understanding and relevance around the impacts. Institutions are concerned that, without a framework to define impacts,
they could be financing outcomes that will prove more damaging than beneficial. Then there is the risk/return balance. I have lost count of the times we have responded to the strategic vision and needs laid out by a major financial institutional CEO for larger scale institutional quality impact opportunities, only to fall foul of their internal investment committees staff by risk-adverse and return-focused, mainstream investors who have no interest in using capital to invest in a better global financial system, which is to the benefit of us all. Blended finance, capital guarantees from DFIs and risk sharing with local institutions in-country are all relevant tools, but a mindset change below the board level – for many institutional investors at least – is still required. With greater investment, we can make a real difference to crucial global issues Yet we and our friends in the impact community have persevered and now face the challenge of providing such investors with larger funds and more investments than ever before. Such is their size that funds need to be in the hundreds of millions in asset size rather than the tens of millions of a decade ago. This has always been our ambition, for it is only by accessing this enormous pool of private capital that we can make a real difference in areas such as climate mitigation
and adaptation, in poverty and gender inequalities and in the desperate need to grow stability and more equality in so many parts of the world. As this challenge becomes a reality, we must continue to refine and develop tools for measuring and reporting the outcomes to ensure that they are not diluted or misrepresented in order to accommodate the extra capital. We must also ensure the investable opportunities are realisable and that the balance between the return to investors and the cost of capital to the investees on the ground is maintained or we will lose the credibility that is taking us so long to establish with the institutional financial community. *The information herein reflects our, the Sustainable Investments group at DWS’, current views only, is subject to change, and is not intended to be promissory or relied upon by the reader. There can be no certainty that events will turn out as we have opined herein. Past performance is not a reliable indicator of future returns. Due to various risks, uncertainties and assumptions made in our analysis, actual events or results or the actual performance of the markets covered may differ materially from those described. No assurance can be given that any forecast, target or opinion will materialise.
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Demand and regulation are driving investment growth Simon Howard Chief Executive,
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criteria to look for when choosing a truly impactful investment fund
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Impact tracking – against an internationally recognised set of goals, such as the UN Sustainable Development Goals
Positive screening – based on the positive contribution a company makes to tackling sustainability challenges
Negative screening – screening out companies involved in exploitative and destructive industries such as fossil fuels and arms
and impact investing experts are now looking at the implications. The reason value-led demand is so important is that people are recognising that the number of issues is enormous, and an entirely different investing approach is needed to address them, one that is long-term, and which monitors nonďŹ nancial matters to a much greater degree than is normal. Issues that are currently receiving attention include diversity, water, the rights of indigenous peoples and many more.
providers consider them. In early September the government changed the regulations governing trustbased pension schemes to require them to have a policy on how they consider ďŹ nancially material factors such as environmental, social, and governance factors, and they speciďŹ cally include climate change. UKSIF will now be working to get this thinking applied more widely in UK ďŹ nancial services.
the recommendations of the Task Force on climate-related disclosures to frame this work, and there is no doubt that it has momentum. The trend is spreading to ďŹ nancial products aimed at individual savers as well with products explicitly focusing on impact increasingly available; these products, by linking areas of concern to ďŹ nance, may well appeal to both value and valuesdriven investors. So, it is all coming together: public interest is driving demand and regulation is helping. Assessing and looking for ‘impact’ is going to be a feature of UK savings going forward.
UK Sustainable Investment and Finance Association
The UK is seeing rapid growth in all kinds of responsible investing. Impact investment, which can be deďŹ ned as an investment where providing some kind of beneďŹ t – usually social or environmental – is a core purpose of the whole activity, is well to the fore. Why is this, and will it continue?
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would point to two linked drivers, investor demand and regulation. In terms of demand, UKSIF members of all types point to increasing interest from savers in what is being done with their money. This demand may be ‘values’ led, for instance an individual or charity wanting to know that their money is not being invested in areas they object to – perhaps animal testing, or in controversial regimes, or it may be ‘value’ led. Value-led investors recognise that, sometimes
in the short-term, and certainly in the long-term, companies that behave badly in terms of polluting, abusing stakeholders or abusing tax legislation are likely to be penalised either by governments or by customers with a consequent loss of value. Short-term examples would be what happened to the share prices of companies like Sports Direct and Volkswagen, where poor corporate behaviour resulted in sharp share price falls. One of the big, long-term issues in value-led responsible investing is what value will be lost as the world economy weans itself off burning carbon. Put simply, if we are to limit global warming, we can’t burn all the fossil fuels owned by the fuel companies, with credible estimates from the Carbon Tracker Initiative suggesting that more than 60% will have to remain in the ground. That represents a tremendous long-term risk to savings, and the responsible
Savers need clear regulations to protect their investment What we are seeing now is the demand being paralleled in regulation. In the UK, work over recent years by the Law Commission, supported by UKSIF and others, has persuaded the government that, since there is a clear risk to savers’ money from the value-led issues, regulation needs to make
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It’s all beginning to change Against this background, we are seeing new investment opportunities and behaviours developing, which is where ‘impact’ features. Fund managers and some pension funds are now beginning to use disclosure on the impact of the companies into which they invest in order to differentiate themselves. The various parties are using initiatives like the UN Sustainable Development Goals and
Read more at globalcause.co.uk
Triodos Social Responsible Investment (SRI) funds As an impact investor, we go beyond negative screening. We go beyond exclusions. How? We focus on solutions. We select companies that develop solutions to the world’s most critical sustainability challenges. Shape a better future.
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UK pension funds begin investing with impact Karen Shackleton Founder, Pensions for Purpose
4.
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Transparency – publishing the entire portfolio of the fund
Active engagement– raising awareness of sustainability challenges and promoting sustainable practices
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It is important that we all remember that the point is not to make investors feel good, it is to catalyse resources to empower those in need – to have an impact on the lives of others - Sean Callahan President and CEO, Catholic Relief Service
Impact investment by UK pension funds is beginning to catch on, with most investment conferences now including a discussion on this topic. Pensions for Purpose, an impact investment information platform, has seen rapid growth in membership in its first year, with nearly 50 Affiliate members (typically pension funds and their advisers) signing up to learn more about this topic.
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o date, local authority pension funds seem to be quicker off the mark than corporate pension funds. Indeed, MJ Hudson Allenbridge’s 2017 research into impact investment by corporate funds identified three key barriers that were holding back funds from investing with impact: • 64% of funds said they lacked knowledge on impact investment. • 82% indicated it was the lack of risk/return data on these types of funds. • 68% said they relied on their investment consultant for recommendations and impact investment had not been mentioned.
These concerns were reinforced in a recent poll of local authority pension funds by conference organiser, LAPF. Here, concerns over speed of investment and the ability to scale up the size of investments were also mentioned – unsurprisingly, given the size of these large, local authority funds. Unclear return on investment can be a barrier Scepticism over returns also remains a barrier and trustees are rightly concerned about their fiduciary responsibility to the members of their pension fund to deliver the best risk-adjusted returns, given the liability profile of those members. Yet the 2018 survey of investors by the Global Impact Investor Network (GIIN) revealed that 91% of investors held impact investments that had delivered satisfactorily to the financial expectations they had when they first invested. Communication improves confidence Two-thirds of the investments in the GIIN survey were in market-rate, risk-adjusted return impact funds. Such a high degree of confidence in financial deliverability undoubtedly gives impact investments an edge over their purely commercial alternatives. Pension fund trustees are regularly in dialogue with managers of commercial funds over returns that have failed to deliver to the expectations set out
To advance sustainability and create prosperity through positive impact investments
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in the manager’s original sales pitch. Part of the reason for this could be that a pension fund can assess impact managers on both financial and environmental/social impact criteria. This makes it easier for the manager to present a more realistic and achievable financial return because they can then talk about their competitive edge in achieving impact. An investor’s beliefs can influence where they invest The start of a pension fund’s journey towards impact investment is to discuss investor beliefs. This will determine how best to introduce impact investments into the investment portfolio. Some funds are making separate allocations to impact funds. Others are treating it more holistically and introducing impact themes across their whole portfolio. Impact measurement is also coming under increased scrutiny, as managers assess how best to measure their impact against the Sustainable Development Goals. Pensions for Purpose aims to help investors with these discussions by providing relevant and informative content on its online platform.
Read more at pensionsforpurpose.com
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Social investment demands a focus on outcomes Government doesn’t always get (nor take) enough credit for innovation, and we are not exactly known for financial engineering. However, the UK Ministry of Justice is a true pioneer in social impact investment.
Lisa Barrett
Director of Analysis, Data-Driven Department and Culture Change
The Ministry of Justice launched the world’s first Social Impact Bond (SIB) in 2010, in partnership with Social Finance. Since then, more than 100 SIBs have been launched around the globe.
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hey are pushing not only our traditional structures and ways of working but also our thinking: social investment demands an articulation of and focus on outcomes. Social impact investment in the public sector is still in early days but the evidence suggests that tools like SIBs could be an effective way to deliver outcomes more efficiently and more effectively, improving accountability—by joining up
disconnected parts of the value chain—and increasing the quality of data and transparency – by necessarily including those things from the start. The presence of investors and innovative commissioning structures also introduces elements of risk, which need to be managed. To mitigate risk and ensure maximum impact, I recommend a few guidelines:
1 It is important to set specific, measurable, achievable, realistic and time-bound outcomes but also ones that are not overly complicated to measure. One way in which this can be achieved is by looking
at all available evidence and then setting fixed (not relative) outcome targets or using interim indicators (which are correlated with desired outcomes) if such indicators offer clarity, simplicity and meaningful indication of results.
2 Risk can be mitigated by working with stakeholders with aligned values and motivations.
3 It is also critical to give social impact partners the flexibility to test, learn and adapt so as to find what works to meet goals. In a structure focused on outcomes,
such flexibility is key for actually achieving those outcomes, by driving innovation.
4 Developing authentic relationships of trust with the investment community and stakeholders is absolutely key. By shifting from a service provider model (‘Here’s my list – can you do it?’) to a collaborative development model (‘What problem are we trying to solve? Think about it with us’), challenges can be addressed more openly, and risk goes down. In fact, I recommend being more open about challenges than one would normally be comfortable with. Given that repayment of
investment is contingent upon results, metrics for evaluation in theory would be built into any model from the start. However, it is worth thinking carefully up front about ways to track and learn from key variables. If, at the end, one simply learns, “this model worked”, one may miss crucial learnings as to why it worked and which elements should be repeated and scaled, and which ones you wouldn’t. In short: start with the end in mind, get crystal clear on what you want to achieve, work backward as to what you want to learn, and build your evaluation strategy (with experts) from the start. Read more at globalcause.co.uk
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Putting the economy to work for the poor
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atholic Relief Services (CRS) recognises that impact investing presents an important opportunity to bring further innovation, scale and sustainable solutions to programmes that can lift the poor out of poverty. Since its founding in 1943, CRS has evolved into an international humanitarian and development organisation that alleviates suffering and provides assistance to communities most in need. In 2017, CRS reached over 130 million people across more than 110 countries. CRS is uniquely positioned to both source and invest in initiatives that serve the poor and vulnerable worldwide. We invest a percentage of our reserve in established impact funds and commit funds to make
mission-aligned investments that enhance the scale and sustainability of CRS development programmes. While we expect a financial return from these and other missionaligned investments, we are led by the impact our investments will have. Improving water and sanitation in El Salvador This past July, in partnership with the Inter-American Development Bank’s Multilateral Investment Fund (IDB/MIF), we launched Azure, a new, blended finance facility that has catalysed both investment and grant capital to improve water and sanitation services for under-served communities in El Salvador. This type of blended finance
vehicle enables us to expand our impact by bringing philanthropic and investment capital together to achieve development outcomes. This is particularly necessary as significant gaps ($2-3 trillion) in financing must be filled to meet the Sustainable Development Goals (SDGs), which cannot be met solely through philanthropy, development assistance or even public budgets. New resources must be deployed, and blended finance solutions are a critical piece in enabling civil society and the private sector to play a role in driving capital toward the poorest and most vulnerable. At CRS, we also recognise the need to help move the impact investing sector towards supporting the poorest and most vulnerable
Sean Callahan President and CEO, Catholic Relief Services
among us. We have leveraged our voice in the faith community to galvanise broader conversation about the critical role of impact investing, including co-hosting three conferences at the Vatican. We see these conferences as a vital, long-term global platform around Pope Francis’ vision of ‘putting the economy at the service of peoples.’ In July 2018, we co-convened, with the Vatican’s Dicastery for Promoting Integral Human Development, the latest in this series of conferences – a results-oriented meeting that catalysed collaboration and generated commitments to drive more money and action to target the most poor and vulnerable. To date, we have received over 100 commitments, from volunteer
mentors to institutional investors committing to moving more of their money to impact. It’s an exciting time in impact investing. But it is important that we all remember that the point is not to make investors feel good, it is to catalyse resources to empower those in need – to have an impact on the lives of others. In the words of Pope Paul VI, our joint work of development “cannot be limited to mere economic growth. In order to be authentic, it must be complete: integral, that is, it has to promote the good of every person and of the whole person.”
Read more at viiconference.org/
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A breadth of opportunity
Geoff Burnand Chief Executive, Investing for Good
Delivering the resources to achieve the Sustainable Development Goals in the next 12 years requires concerted action at scale, so the recent involvement of mainstream financial institutions into impact investing is welcome. But beyond the positive headlines, many issues have yet to be satisfactorily addressed.
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hy is there not more competition among investors for projects explicitly focused on achieving the SDGs and the 2030 agenda? Are impact investors cherry picking deals? And in future times of duress, will investors maintain their commitment? A greater opportunity set One sign of the maturing market is a significant broadening of impact opportunities, hitherto disproportionately focused on microfinance, energy and social
housing. Press freedom, for example – key to the development of peaceful, just and democratic societies – is now gaining mainstream appeal as an impact opportunity. Eighty-seven per cent of the world’s population – about 6 billion people – live in countries without an independent press. Not only do peace, justice and strong institutions provide direct benefits to people in their everyday lives, they also underpin a wide range of SDGs. How can you eradicate poverty (SDG 1) and hunger (SDG2) if you cannot create peaceful societies? How do you achieve gender equality (SDG5) without access to justice? How do you provide access to clean water (SDG6) or affordable energy (SDG7) without responsive institutions? According to the UN, corruption, bribery, theft and tax evasion cost developing countries $1.26 trillion per year. Investing in independent news organisations can act as a strong brake on bribery and corruption and in both the public and private sector.
Impact investing in the arts Another impact investment opportunity is a response to an adverse consequence of London’s rampant development. Although London is a city with extraordinary cultural vibrancy, 3,500 sites of creative production are projected to be lost by 2020 to short or expiring leases, to the actioning of landlord development clauses, or to the expiration of ‘meanwhile’ spaces. Few creative workspaces are owneroccupied and workspace operators often face major barriers to securing or renewing leases. They are often up against commercial developers and they lack access to financial support to take on development opportunities. A new impact investing model, a creative land trust, based on a similar model in San Francisco, will acquire properties that will be leased to operators, thereby safeguarding affordability and long-term stability for London’s creatives. Blended finance using grants from the public sector to underpin significant private finance
investment will protect 1,800 creative workspaces and create 1,000 new ones, securing these spaces in perpetuity. London as a whole will benefit from the regeneration of under-invested sites through a stimulation of local business growth, preservation of the waning number of light industrial spaces, and the boost to the city’s world-class artistic and cultural value. Impact investing for sexual and reproductive rights Finally, sexual and reproductive rights for all, including the underserved, is a fundamental human right. Investing with impact capital in organisations that provide a range of health services including contraception, breast, and cervical cancer screenings, HIV prevention and treatment and safe abortion can provide millions of life-saving services annually. In many instances, these organisations have developed repayable social enterprise models that help meet the increased demand for reproductive health services and are gaining
support from impact investors to implement sustainable growth strategies. The right balance The range of these examples reflects the diversity of opportunity that impact investing now presents. However, its future is dependent on achieving the appropriate balance between encouraging further institutional investment on the one hand, without on the other compromising the value created by those organisations dedicated to delivering a world with greater equality. Bridging the gap between the fundamental investment expectations of mainstream capital and the reality of impact investing needs innovation, expertise and a nuanced approach. Investment models that blend public and private finance optimally allow impact driven organisations to be financed by additional sources of capital while retaining the integrity of their mission.
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Capitalism 2.0: Where profit and purpose meet We are already using humanity’s greatest invention - money - to heal the world’s social and Amit Bhatia environmental ills. By fully mobilising the Impact Movement, we can invest in a future CEO, where no one lives in poverty and the planet thrives. the Global Steering Group for Impact Investment (GSG)
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ake a moment and imagine Capitalism 2.0: a world where our economies drive solutions to poverty and environmental degradation, rather than exacerbating the challenge. Mindful of the effect of their investment decisions on people and planet, a critical mass of investors already believes in this collective responsibility to minimise negative externalities and maximise positive impact.
Making the economy more compassionate The next phase of capitalism makes money more conscientious and the economic system more equal, just, and compassionate. The central tenet of this economic system is capital + purpose = impact. This principle underlies the impact economies we envisage for the global community in Capitalism 2.0. But first, we need the mass mobilisation of impact investment to guarantee this future. According to the UN, $23 trillion of the global $87 trillion financial assets under management (excluding Latin
America and Africa) is already aligned to supporting the UN’s Sustainable Development Goals (SDGs). Such investments are called “responsible”, “sustainable” and “impact” investments. Along this continuum, they are delivering similar returns in the developed world, and superior returns in developing world, when compared to pure wealth maximisation strategies. India, the site of the The Global Steering Group for Impact Investment’s (GSG’s) Impact Summit in October 2018, has multiple impact enterprises with greater than $1 billion revenues or valuation – Amul Dairy in dairy farming, Jain Irrigation in agriculture, Ramki Enviro in waste management, AU Small Finance Bank in financial inclusion, and ReNew Power, Mytrah Energy, Orange Renewable and Welspun Energy in renewable energy, are all impact enterprises.
Why should anyone invest without seeking impact? India also offers an example of the influence these investments can have in Capitalism 2.0. McKinsey recently estimated that impact investments
in India returned 11% internal rate of return (IRR) – a measure of profitability used in capital markets – between 2010-2016 in dollar denominated terms, across $4.5 billion of investments, while impacting 60-80 million lives annually. Why should anyone invest without seeking impact? These enterprises are replicable elsewhere in India and across global markets looking for impact. Here’s how the impact continuum brings us closer to Capitalism 2.0.
The ABCs of the impact continuum Act to avoid harm Responsible investments Act to avoid harm to their stakeholders, by, for example, decreasing their carbon footprint or paying appropriate wages. Managing environmental, social and governance (ESG) risks are the biggest part of this component. Responsible investments already make up a significant proportion of some large institutional investors’
portfolios and are performing on par with conventional assets. PGGM, the €183 billion Dutch pension fund, estimates responsible Investments make up 81% of its portfolio. Meanwhile, Blackrock’s BSF Impact World Equity Class returns 22.4%. This proactive behaviour from institutional investors has created a $16 trillion sector and will ultimately lead to fossil fuel stocks, tobacco and liquor companies, arms and ammunition corporations, and other kinds of polluting industries or those considered detrimental to society, quickly falling out of favour with their financial backers. Benefiting stakeholders Sustainable investments Benefit stakeholders, for example, by proactively upskilling their employees, or selling products that support good health or educational outcomes, are next in the impact continuum. These investments include ESG integration and sustainability themed investing, for example green finance. Overall, sustainable investing is now $6 trillion in size. PGGM’s portfolio has
5% of such sustainable investments. Catalyse solutions Impact investments are further along the impact continuum: they can also use their capabilities to Catalyse solutions to pressing social or environmental problems. For example, by enabling an otherwise underserved population to achieve good health or educational outcomes, financial inclusion, or hiring and skilling formerly unemployed individuals. We are the first generation that can end poverty We cannot be spectators to social injustice and climate injustice any longer. As former UN Secretary General Ban Ki-moon said, “We are the first generation that can end poverty, the last that can end climate change”. We must rise to the challenge and opportunity of creating Capitalism 2.0 – this is a vision worth striving for, worth living for, and worth investing in.
“Big mistake. Big. Huge.” Will women be the force behind a new wave of growth in impact? It’s up to the industry. I can’t help but think of that famous line Julia Roberts uses to shame a couple of flustered Rodeo Drive sales people in Pretty Woman when I think about how the investment industry carelessly overlooks female investors. Here’s why they are making a ‘big mistake’...
1 Women are expected to hold 60% of the wealth in the US in the next 10 years, with similar figures cited for the UK.
2 Women outperform. Returns on their investments were on average about 1.2 percentage points higher than men, according to Barclays Smart Investor research of 2,456 investors. And, directly relevant to players in the impact investment space...
3 Women make ideal impact investors, sincerely caring about how their money is used. According to Moxie Future’s survey of 2,500+ women across 5 key markets (Australia, China, Germany, United Kingdom and the USA), 83% of women care about where their money is invested and 69% feel a sense of urgency to invest responsibly. Despite all this, women aren’t investing nearly as often as men and the industry could be missing out on a £130bn opportunity by not even trying to win them over. As Amy Clarke, Co-founder at Tribe Impact Capital says, “... it’s one of the least talked about ‘movements’ in the media. Why, I have no idea. There’s a huge focus on the millennials but less so on women.” This year’s Good Money Week (29 Sept - 5 Oct) will run its ‘Who Fund the World?” campaign to give women the information they need to invest
with confidence and have a positive impact on the world while doing it. However, industry must play its part too. Let’s look at financial advice, for example. Can anyone hear me? A repeated anecdote I hear from women who have sought financial advice is that it is assumed their male partners or husbands are the client. One woman reported that her adviser barely looked at her during an appointment and asked for her husband if he called the home. We also have an issue with advisers not respecting people’s desires to express their values in their investment decisions. The following story is even more alarming when you consider climate risk and its impact on investment performance. So serious is the risk, pension funds have been warned by lawyers they could be sued if they don’t examine it. Jessica Robinson, Founder at Moxie Future told me, “When setting
Charlene Cranny Communications and Campaigns Director, UK Sustainable Investment and Finance Association
up Moxie Future, I did an experiment with various financial advisors, including both men and women. I told them that I did not want to invest in fossil fuel companies. Period. Not one financial advisor took me seriously. I was patronised and talked down to – about how this would mean there would be very few funds I could invest into or how I would have seriously reduced financial performance over time. I was astounded by how little these financial advisors knew about the issues (climate change, carbon budget etc.) but also how this was covered up and glossed over. Obviously, none of them knew what I did for a job before giving me these lines!!” Thankfully there are places women can go to get the support they need. Adviser members of the Ethical Investment Association (part of UKSIF), many of them female themselves, respect client values and are aware of the problems women face. Some even cover details
like having a small play area in their office for any young children in tow in an effort to be more welcoming. And for those women who don’t warrant an adviser yet you can go directly to an investment platform that promotes positive impact such as Smart Investor or Abundance. You only need £50 to get going. The whole industry – not just advisers -– would be mad not to take a look at how they are engaging women. Especially those in the impact space. If you want wealthy, passionate, highperforming impact investors, you needn’t look any further. Let’s clear the way for women and start respecting them as the wealth creators they are because when women invest, the world wins.
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Aligning capital markets with the SDGs
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The invisible heart of the market
Haoliang Xu UN Assistant Secretary-General, UNDP Assistant Administrator Director for the Regional Bureau, Asia and the Pacific
Sir Ronald Cohen Chairman, Global Steering Group for Impact Investing SIR RONALD IS SET TO PUBLISH HIS REVOLUTIONARY NEW BOOK THAT PROMISES TO BE A CATALYST FOR GLOBAL PROBLEM-SOLVING. TO PREPARE THE WAY, HE WILL LAUNCH A GUIDE TO IMPACT INVESTMENT IN OCTOBER AT THE
When I joined the UN in 1994, aid from rich countries to AsiaPacific nations accounted for more than 10% of all money in the region. Today that figure is less than 1%. As economies grew, countries’ own resources dwarfed the inflow of foreign aid. This is a seismic shift in the global development system.
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ur role has also changed. We at the United Nations Development Programme (UNDP) used to train officials, organise exchanges of experts and expertise and design processes. Nowadays, we not only help Asia-Pacific governments spend their own money for their own development, but we also help countries access new sources of financing. One of the sources key to solving some of our most stubborn development challenges is impact investing – money invested for social good. 400 million in poverty could be helped with impact investing We need impact investing because big challenges remain. Some 400 million people still live in poverty. Rising inequality, rapid urbanisation, ageing population, migration, extremism and environmental disasters all require sophisticated solutions. The Sustainable Development Goals (SDGs) adopted by world leaders are clear and provide a framework of integrated solutions to the challenges. The 2030 Agenda is an ambitious plan, and UNDP is committed to help governments achieve that plan. Governments, communities and policy-makers must collaborate to achieve the SDGs This has to be a collective effort, and we are bringing together governments, business, civil society, philanthropists, communities, volunteers and international partners. As we explored ways of engaging private capital for sustainable development, we learnt about and embraced impact investing. Asia is an emerging power in this area. There is growing appetite, and strong demand. From the global or regional perspective, we see the power of impact investing to mobilise and channel capital to areas and countries most in need. On the ground and at the local level, we work with governments and various partners to identify different entry points and the best vehicles to address the greatest challenges: impact fund for Bangladesh, social enterprise fund for Sri Lanka, Green Sukuk bond for Indonesia, sustainable economic zones in Cambodia, etc. Through our experience, we have witnessed how impact investing offers great potential for collaboration and partnership between stakeholders. It is not a panacea by itself, but it brings out the best synergies and complementarities between the public and private sector. Financially supporting ecosystems for wider community gain Meanwhile, we are also supporting the ecosystem development in many countries, because we understand that, without a healthy ecosystem and an enabling environment, it will be hard to bring impact investing to scale. For instance, we support youth entrepreneurship, incubators and accelerators, business and human rights, and we work with governments to develop the right policies to promote new business and investment models for sustainable development. The SDGs have opened up extraordinary markets and huge opportunities for people to make a difference with their money, and as the guardians of the SDGs, we are ready to work with you to align capital for a better humanity, and it is high time that we embarked on this journey.
GSG IMPACT SUMMIT IN NEW DELHI.
Sir Ronald Cohen is Chair of the Global Steering Group for Impact Investing (GSG). He has been described as "the father of British venture capital" and "the father of social investment," with 18 years devoted to pioneering the impact investing movement. Here Sir Ronald answers some important questions. Q: You began in venture capital. What similarities do you observe between the tech revolution and the impact investing movement? A: The tech revolution changed the world. Now we are seeing an impact revolution. The impact revolution is the culmination of an evolution in thinking over the past 18 years. The government asked me to research poverty in the UK in 2000. That’s when I started really thinking about the impact revolution. My initial premise was simple: businesses should be able to transfer money to those who need it most. For 250 years, business and investment decisions have been made on the basis of financial return first, and, in the last century, ‘risk and return’. Today, if we are going to cope with the magnitude of social and environmental issues we face, we need to shift to a model where investment and business decisions are made on the basis of three dimensions; risk, return and impact. We need to shift capital flows through entrepreneurs, big business, investors, employees and consumers to bring solutions. Everyone has a role to play. This revolution is unifying and expresses a change in our values. Inequality has increased after the tech revolution. The flagbearers of this change in values is the younger generation who are looking for more meaning than just making money. Q: What is standing between impact investing and the
mainstream? A: We need a standard way to measure impact. We need to compare investment portfolios and judge which companies and entrepreneurs deserve backing. The Global Impact Investing Network, which I chair, has joined up with the Impact Management Project to drive accounting principles and a framework by the end of 2019. We would like to start the decade with a framework in place so that serious investment money can begin to flow in the correct way.
pounds of profit but with an impactweighted measurement it might be making only half a million in profit or 120 billion pounds in profit! They might have employment practices that are helping diversity and eliminating child labour and the resources they consume are better than water-neutral, carbon-neutral and plastic-neutral. We need to put a monetary figure on social and environmental impacts. This is a revolutionary idea but it’s feasible. And we’re on the way to achieving it.
Q: Individual investors and institutions are experimenting with different models for impact investing. What are the key principles binding this movement together? A: There are no less than 150 different initiatives across the world that measure impact. We must firstly, optimise risk, return and impact. Secondly, we must measure the impact and thirdly, focus on outcomes, not on activities. Once you measure outcomes you can create initiatives that prevent social problems. We must recognise that impact entrepreneurs globally are our allies and we should fund them in the way we funded tech entrepreneurs. Impact investing could bridge the $30 trillion gap needed to achieve the UN Sustainable Development Goals by 2030. We can no longer rely on governments and philanthropists alone to tackle the scale of social and environmental issues. We need a radical change in our system to redirect capital flows.
Q: What sort of future do you imagine the impact revolution will create? What does it look like to everyday people? A: I see a world where inequality is shrinking, where natural resources are regenerated, and people can unlock their full potential and benefit from shared prosperity; a world focused not just on minimising harm but doing measurable good. And every one of us has a role to play to bring about a better world. We have created growth, but the generous hand of prosperity has left billions behind. We are seeking to harness entrepreneurship and innovation to overcome world problems. If Adam Smith could have envisaged measuring impact he might have said that impact is the invisible heart of the market to guide the invisible hand. Human nature is moved by altruism, empathy and fairness, not just the profit motive. The impact revolution is providing a practical tool, capable of bringing real improvement. This gives us hope and empowerment instead of being frozen into uncertainty and inaction by the scale of the challenges.
Q: The impact investing space lacks a universal measurement standard. How do we solve this problem? A: We take our existing financial accounts and apply weights to sales, employment and resources to arrive at impact-weighted profit. You might have a company making a million
Diane Priestley
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Investing in a better future for all Klara Kozlov, Head of Corporate Clients at Charities Aid Foundation, is witnessing new enthusiasm for more meaningful investmentevery day.
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ccording to Klara, there is an increasing collective momentum to achieve the Sustainable Development Goals (SDGs) set by the United Nations in 2015 to be met by 2030. The (17) SDGs appear as applicable to the world of investment as they are to the world of philanthropy. She says companies and communities have started to adopt the SDGs, enabling a shared understanding and a framework for positive action. Klara is Head of Corporate Clients with the UK-based Charities Aid Foundation. Established over 90 years ago, CAF works with more than 2,500 companies, including many of the FTSE 100, and over 2,700 individual HNW and UHNW philanthropists. CAF
clients support 73,000 charities in 110 countries annually and has supported over 570 social enterprises and notfor-profit organisations with impact investment. She says: “The SDGs have entered the stage and created a new dynamic to the drama of how we look at and aim to solve global problems. Investors are realising the potential of the SDGs as an additional way to rate fund performance; allowing a new measure for how the companies within those funds are creating a positive social and environmental impact. “What is noticeable is that there is a real cogency around the language of the SDGs. This encourages a shared understanding, which is reinforced by a set of goals that can be adopted across all sectors.The SDGs can bring everyone around the table to find a common thread; a connectivity that has the potential to speak to everyone” CAF inspires and enables their
individual and corporate clients to move charitable funds from the private sector to the charity sector securely and safely, so it reaches the intended charities, helping transform more lives and communities around the world. We increasingly see both companies and individual philanthropists adopting the goals as their philanthropic framework, particularly including areas such as health, gender equality, education and, most recently, food waste and harmful plastics in the environment, which is being driven by consumer awareness. Klara explains that the role of funding is changing in the eyes of the donor. Our clients are shifting to consider the impact that can be achieved beyond a pure donation. For example, companies understand that they have a much broader role to play in what is a much more complex picture. “Progressive companies are de-risking
Klara Kozlov Head of Corporate Clients, Charities Aid Foundation (CAF)
and building resilience as part of their sustainability in recognition of future challenges their business, and society overall, might face.” Donors appreciate that thoughtful philanthropy coupled with measurable impacts and assimilation to the SDGs can deliver meaningful change. That it can provide a much-needed space for critical thinking, which, when coupled with funding and support, can lead to innovative solutions to social and environmental issues. From an investment perspective, the SDGs are starting to be used to measure a company’s overall social and environment performance alongside other measures and metrics such as ESG and controversy avoidance. On the flip side, from a philanthropy perspective, the SDGs are enabling CAF to examine key areas of a donor’s impact to get a tangible and comparable view of what that positive change means to people and their communities.
It demonstrates the power of the goals to act as one measure with profound value for all. Diane Priestley About CAF For over 90 years, we’ve been helping donors, companies, charities and social organisations make a bigger impact.We are CAF and we make giving count.
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Helping the planet with equity impact investing
Euan Stirling Global Head, Stewardship and ESG, Aberdeen Standard Investments
As with any form of investing, the value of an investment is not guaranteed and can go down as well as up. An investor may get back less than they invested.
broad-based, addressing a range of social and environmental issues.
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A measure of success How to ascertain whether a company is having a genuine impact can be a challenge. In our view, impact investing must have two characteristics: the company must have the strategic intention to deliver a positive impact and this impact must be measurable.
Burgeoning opportunities The success of these companies can create value for long-term investors, both financially and socially. Asset managers can harness the power of these opportunities by purchasing company shares and creating an equity impact fund. Such funds can have specific goals, such as concentrating on job creation and employee wellbeing, or can be more
United in impact One framework for helping to identify the world’s challenges, and consider a corporate’s contribution to progress against these challenges, is the United Nation’s Sustainable Development Goals (SDGs). These are a set of 17 global goals aimed at tackling climate change, rising inequalities, and unsustainable production and consumption. The UN has identified 232
mpact Investing involves investing in organisations that are attractive from a financial position, but whose activities, technologies or products are designed to address the planet’s long-term problems.
indicators to measure progress against the goals, and asset managers can use these indicators to analyse the positive outcomes that companies are supporting. For example, a business’s contribution to sustainable energy can be gauged against the proportion of its customers that now have access to clean energy or the amount the company invests in developing clean energy. For companies, the UN SDGs can provide a framework to identify new markets and direct their efforts to the areas of greatest need. Supporting the SDGs creates tangible opportunities for companies to contribute positively to society and the environment, while simultaneously enhancing the longterm financial value of the business. It’s all in the report Aside from intention and measurement, it is important that
companies report accurately and meaningfully on their activities. This can demonstrate transparency and accountability, and should help build investor confidence in impact investing. It also allows investors to make comparisons between companies and analyse the businesses in which they invest. A bright future The outlook for mainstream equity impact investing is bright, as investors look for financially attractive investment solutions that make a difference to the world. As more capital and expertise enter the market, we will likely see a wider range of investment solutions emerge that seek to address the numerous challenges highlighted by the SDGs. Importantly, impact funds will build performance track records during this time, which will help demonstrate the benefits of these
type of investment solutions and cement their place in the vanguard of values-based investing. About Aberdeen Standard Investments is a brand of the investment businesses of Aberdeen Asset Management and Standard Life Investments.
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