How is the global market for impact investing developing?
Tuesday, 22nd October 2019 at 8:31 am
Carly Hammond shares her top five take outs from the GIIN Investor Forum 2019.
Earlier this month, over 1,000 impact investors gathered in Amsterdam’s Beurs van Berlage – a historic building which housed the Netherlands’ first commodity exchange – for the Global Impact Investment Network’s (GIIN) 2019 Investor Forum.
Together with Responsible Investment Association Australasia members Christian Super, DFAT, QBE Insurance and other Australian investors and enterprises, I participated in the forum, engaging with and hearing from impact practitioners spanning the globe.
Here are my top five take outs on how the market for impact investing is developing.
1. Convergence is happening with impact investing conventions and frameworks
Recently there’s been work done to better define the core elements that define impact investing (the GIIN’s Characteristics and the IFC’s Operating Principles) as well as conventions and frameworks (notably the Impact Management Project, the sustainable development goals and the GIIN’s IRIS+ metrics) to support the integrity of, and consistency across, impact management.
Encouragingly, we’re now seeing these conventions and frameworks being integrated across impact tools, standards and reporting.
For the SDGs, while an increasing number of investors are now mapping or aligning their investment portfolios to the goals, the challenge for many lies in integrating the SDGs into investment processes and impact strategies from the outset (or risk being labelled as SDG-washing).
2. We won’t solve the world’s problems if all impact investments must deliver market rate returns
The halls of Beurs van Berlage were full of investors seeking market rate (or above) financial returns. However the importance of blended capital (where an investor provides “catalytic” capital that achieves lower than market rate returns in order to attract market-rate seeking investors into impact investments) was reinforced.
Some investors, such as philanthropic and public bodies, are attracted to blended finance for providing an opportunity to achieve greater impact or impact that otherwise may be impossible. For some institutional investors, it’s a strategy for creating a pipeline for investments that may deliver market-rate returns in the future. Either way, as catalytic capital pioneer Debra Schwartz from MacArthur Foundation said, “If the conversation about impact investing is only about market-rate returns, we’ll leave a lot of impact behind.”
3. The jury remains out around public equities and impact investing
While many impact investors maintain it’s impossible to do impact investing by investing in public companies, just as many argue that we need to find a way if we are to achieve the SDGs.
Barely a week goes by without a new public equities product launching and labelling itself as “impact”, however few of these cut the mustard in the eyes of impact investors. Those who claim they have an impact investment product focused around public equities should, at minimum: demonstrate how impact is embedded in their investment approach; invest only in companies where the delivery of positive impact (through products and services) is a core driver of the business; measure and report on impact; as well as actively engage with these companies to improve social and/or environmental performance.
4. Standardisation of data is important, but shouldn’t come at the cost of impact
Work is progressing to enable investors to better compare impact performance across investments, such as with IRIS+ metrics and the SDGs. But with this comes a debate around whether the standardisation of data is overrated.
Data standardisation obviously helps with creating benchmarks, however some impact investors warn that it risks a top down approach where impact management gets lost and things get unnecessarily over-complicated. To help progress this conversation, the GIIN has launched Evaluating Impact Performance, offering a new approach for comparing impact results for investment within distinct sectors, the first two being in housing and clean energy access.
5. Not all impact is created equal
The GIIN’s new research highlights the importance of “context” when assessing or interpreting impact.
As one speaker said, “one litre of water saved in Israel is of much greater value than one litre saved in Canada”. This led me to question the degree to which Australian and New Zealand impact investors are (or aren’t) investing in emerging and developing economies, including within our region.
Alongside investment benefits including greater portfolio diversification, the potential to contribute to social and economic development, as well as environmental sustainability, is enormous. If we’re to make a serious contribution towards the SDGs, Australasian investors will do well to explore the opportunities for impact in our backyard.
About the author: Carly Hammond is the Impact Investment Forum program manager for the Responsible Investment Association Australasia (RIAA). The Impact Investment Forum is an initiative of RIAA to support the development of the market for impact investing in our region and to promote the integration of impact across investment portfolios. Hammond is also a non-executive director of B Lab Australia and New Zealand.
Hammond will be chairing a panel on the subject of public equities and impact at the upcoming Impact Investment Summit Asia Pacific in Sydney in November.