When it comes to impact investing for institutional asset owners, there is no one-size-fits-all solution. But four case studies of large institutional investors by the GIIN show three features they all have in common.
With institutional asset owners increasingly interested in impact investing, the Global Impact Investing Network (GIIN) has produced a number of insights investors may consider when they decide to adopt an impact lens.
In a position paper, the New York-based GIIN analysed the impact investing strategies of the UK’s South Yorkshire pension fund, PGGM, the Dutch pension fund service provider, Swiss insurer Zurich Insurance, and US insurer Mass Mutual.
Although these asset owners all have their own approaches to impact investing, they have three things in common, according to the GIIN. First, they all have defined impact priorities that serve the interests of their beneficiaries. Second, they have all created a strategy where investment opportunities can be identified within a portfolio across different asset classes.
And finally, they all target investments that will not only deliver financial returns but also positive real-world outcomes, aligned with the initial chosen impact priority.
“We believe that if you want to do a robust impact strategy with integrity, these three features are some of the key ones,” Christian Rosenholm, the GIIN’s director of institutional engagement, told Impact Investor.
Institutional appetite
The paper, titled ‘Pursuing impact within a portfolio: insights from institutional asset owners’, is based on the GIIN’s own publications, key stakeholder interviews and selected outside publications. It also includes key takeaways from more than 30 roundtables the GIIN has held with over 60 institutional asset owners in the past three years.
“We’re still early in developing this concept, so we have to look further to see what else might be there,” Rosenholm said. “But these three [features], at least when we see across institutional asset owners, we can see these being repeated. It is something that they’re all working with in different shapes and forms.”
Rosenholm said he believed that the institutional asset owner market is ready for impact investing. “We are hearing more and more institutional asset owners being curious about impact investing, how to go about it, what to do.”
Last year, the GIIN published a concept paper around holistic portfolio construction with an impact lens. “Now it’s time to try to show more concrete examples of how some institutional asset owners are executing on their impact strategies,” Rosenholm said.
South Yorkshire pension fund
Take the South Yorkshire Pensions Authority (SYPA), for example, which began impact investing to align its investments with the local community’s priorities and needs, following talks with the regional mayoral office.
To other institutional asset owners who are considering impact investing, SYPA’s head of paid service, George Graham, recommended looking for returns where you wouldn’t ordinarily expect to find them.
“There are complicated mathematical models that tell us how much future returns are going to be…telling [us] that it’s more and more difficult to make money,” Graham said in the GIIN’s position paper. “Well, that’s based on looking to make money where you would usually look to make money. Look somewhere you wouldn’t usually look, and you might find something.”
Institutional clout
Institutional asset owners wield “immense massive clout”, when it comes to solving some of the world’s biggest challenges, according to the GIIN.
Currently, around 1% of all capital in the world managed by all types of investors is being put towards an impact strategy. “If we can get to 5%, if we can get to 10%, we’ll have solved a lot of things,” said Rosenholm.
“We’re looking to get every investment to consider impact, while recognising that not every investment will be for impact”, said Rosenholm. “We’re pushing to create a more diverse portfolio, where investors look for opportunities within different asset classes.
“You might say we’re looking to think a little bit more systemic on what problem is it that you want to solve? And then, how can your different asset classes come together in helping delivering this to the benefit of your pension savers or policyholders?”
By adopting defined impact priorities, investing across asset classes, and targeting allocations that offer both financial returns and positive real world outcomes, the GIIN position paper makes it clear that institutional asset owners could play a substantial role in the future of the impact industry.
