The UK is committed to being among the global leaders in the fast-growing field of impact investing. The newly announced Impact Investing Institute is one sign of this.
Such leadership and commitment are welcome since private investors’ capital is sorely needed if the world is to stand a chance of achieving the sustainable development goals and the targets of the Paris Agreement.
More pension funds now recognise the relevance of these goals to be in the best interests of their beneficiaries. As a result, interest in impact investing is taking off. This is excellent news because foundations, philanthropists and publicly funded bodies simply do not have the same heft as capital markets participants to match the needs of the coming critical decade.
Yet there is a problem, which is the shortage of investable opportunities for impact investors, particularly larger ones.
As recently reported in FTfm, a survey of institutional investors’ and consultants’ views on impact investing by KBI Global Investors, the Dublin investment manager, found the top concern was finding suitable unlisted companies to deliver both an appropriate mission and the potential for viable returns.
One obvious solution is for pension funds and asset managers to pursue impact-driven stewardship of public equities alongside sourcing unlisted impact investments. Indeed, to ignore the potential to generate greater positive net impact in the public equity space seems perverse. After all, every investment has an effect in the real world, and larger entities usually generate larger effects.
This is starting to happen, albeit typically without an “impact” label. Consider the work of ShareAction’s Investor Decarbonisation Initiative, a group of more than 70 public equity investors pushing companies to set ambitious climate targets, such as shifting operations to use only renewable electric power.
The project is a success. After dialogue with carefully identified companies, big names including Tesco, St Gobain, BT and Kingfisher have made ambitious environmental commitments that are being tracked by the same investors who pressed for bolder action.
Similarly, commitments by FTSE 100 companies to pay the UK real Living Wage to all staff and support services contractors have been driven by an impact-hungry coalition of public equity investors which has worked together over the past decade.
The clear intention of these investors has been to reduce working poverty and address the yawning inequalities in wage distribution. The work has had a measurable and meaningful effect on many lives.
The Global Impact Investing Network recently published a primer on the characteristics of impact investing. These include the intention to achieve social and environmental impact, using evidence and data to tailor each approach and sharing information on performance. Impact-driven stewardship of public equities can — indeed must — adopt all these characteristics.
For younger generations of pension savers, public equities will continue to be the dominant asset class in their defined contribution schemes.
There is huge interest from this group in impact investing, not only as an expression of values but because action on the climate crisis, decent jobs, gender equality and public health is relevant to their lives and best interests.
From 2020, we enter what has to be a decade of delivery on the Paris goals. This will require that every fiduciary investor, including every pension fund, sees themselves as an impact investor. Highly intentional, outcome-focused stewardship of public equities will be central to reaching impact at scale.
Source Financial Times