Impact assessment should be seen as part of the solution, not a deterrent to profitable investment, big institutions argued at the GIIN Impact Forum 2023.
In the future, all investments should be viewed from the perspective of the environmental and social benefits they bring right from the outset: that was the message from the annual Global Impact Investing Network (GIIN) forum held in Copenhagen last week.
That might seem like a tough sell to investors struggling to make returns against the backdrop of current geopolitical and economic uncertainties, many of whom still regard impact investing as a form of philanthropy rather than a way to make money. But it is a necessary step and ultimately a rewarding one, according to Amit Bouri, the CEO of the GIIN, one the main bodies for pooling knowledge and developing measurement tools for impact investors.
He told Impact Investor in an interview at the forum that there had been “a very sober recognition” among attendees over the severity of the problems that the world is facing right now, but that impact investing techniques applied more widely should be viewed as an important part of the solution to addressing large systemic issues.
“Applying impact as a lens to apply across a whole portfolio is incredibly powerful in terms of the volume of capital it can unlock, but it is even more powerful in terms of the shift in thinking it represents, because our vision is that is that impact becomes part of all investing,” Bouri said. “We can’t just have a subset of investors focused on addressing climate change or inequality or nature loss, we need all investors.”
He said he was encouraged to hear representatives of large institutional investors on stage at the event saying they were either committed to looking at impact holistically for their portfolio now or planning to shift to that position in the near future. Thse included the Ontario Teachers’ Pension Plan (OTPP), with some C$250bn (€174bn) of net assets, Singapore government-owned Temasek, whose global investment portfolio is estimated to be worth an estimated $280bn (€265bn), and Dutch not-for-profit pension fund service provider PGGM, which manages around €230bn in asset for its clients.
Ontario Teachers’ impact pilot
OTPP decided in 2022 to look for ways in which all of its 450 investment professionals would have an opportunity, though not an obligation, to make investments across all asset classes and all regions in which the organisation was active that would improve outcomes for people and the planet.
Robert Sturgeon, OTPP’s managing director, global investment strategy told the event that the pension fund had engaged widely across the impact investing community and concluded that in order to successfully deploy an impact investment strategy that necessarily had to be non-concessionary, across all of its operations, it needed to run a pilot scheme to learn more.
“We took a step back and said, you know, we understand this conceptually, and we talked to a lot of smart people, but we haven’t done it. So let’s take 2023 to experiment and to learn more about impact investing empirically,” he said.
Under the pilot, OTPP took nine of its existing portfolio companies, most of them recently acquired, and applied impact assessment and measurement methodologies to them.
He identified some of the main findings from the pilot. Firstly, that impact investing needed to be nuanced, because there were few investments that were completely beneficial or harmful in terms of impact.
The pilot also showed that by assessing the impact of a product or service offered by a company, OTPP as an investor could more easily understand the needs of the customer or beneficiary of a product, and thus better understand the value proposition of the company.
“It wasn’t only, does this company improve people’s lives… but also seeing that as a real lever for value creation. The more you’re improving your customers lives, the more sticky that business is and the more sustainable it is over the long term,” he said.
Sturgeon also said he had found that measuring impact to show benefits worked as an antidote to concerns both internally at OTPP and externally that targeting impact goals was a form of politicization of investing.
PGGM’s new strategy
Geraldine Leegwater, chief, investment management, at PGGM told the forum that the Dutch pension funds manager had recently changed its strategy to integrate risk, return and impact more closely, making impact goals more central to its investment process.
She said that PGGM had already achieved a target set for 2025 of making 20% of its portfolio qualify as sustainable development investments, under a taxonomy it has developed with other asset owners. But that had been achieved by investing first and then looking at the impact benefits later.
“We believe that when it comes to fully integrating impact into the portfolio, it starts at the very beginning of the investment process, which implies that at the time we set the risk and return goals, we immediately set clear embedded [impact] goals,” she said, adding that sustainable development goals would now be “at the forefront of the plan”.
For more on PGGM’s investment strategy, see our interview with Maurice Klaver, senior investment director in the private equity team.
While persuading institutional investors to view their entire portfolios through an ‘impact lens’ is a work in progress, the impact investment sector itself is growing in size if the turnout at this year’s GIIN forum is an indicator, with more than 1,500 attendees, of which the majority were first time attenders, compared with around 1,000 at the 2022 event.
Bouri said the GIIN would be working to increase the sophistication of the market and pursue the goal of wider adoption of impact goals between now and the next forum, to be held in Amsterdam in October 2024.
“We will be working over the coming years to help refine that thinking and help address barriers to the implementation of a portfolio-wide approach, and also to share with more investors around the world,“ he said.
As part of that drive GIIN launched an initiative in collaboration with Temasek at the forum designed to educate investors on how to approach impact investing, especially in Asia, where the sector is still relatively underdeveloped.