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In pursuit of real-world impact

Published: 11 December 2023

In the second of our series of stories covering Impact Investor’s Annual Conference last week, the experts tell us what is still needed to unlock real-world impact today.

Adrien Gruson, Christophe Bochatay, and Wouter Koelewijn in panel discussion with Tjibbe Hoekstra at Impact Investor’s Annual Conference

In the second half of Impact Investor’s Annual Conference last week, special focus was placed on the role of family offices, private wealth owners and their advisors in generating measurable social and environmental impact hand-in-hand with market financial returns.

A keynote by Karin Bouwmeester, ESG lead in private equity at PGGM got straight to the heart of the matter. She spoke of her journey from banking to pension fund investing, and about how retail clients were interested in liquid equity assets with impact credentials.

At ABN-Ambro she had to set up the impact mandate and building blocks from scratch. Feedback was positive but comments like “you cannot really make impact because [listed equities] are on the secondary market” bugged her.

PGGM gave her a chance to really make an impact. But life is never that simple. Nine months into the new job and she has found that impact investing in private equity is also a challenge, but well worth the effort.

Plugging SDG finance gaps

Jan Anton van Zanten, SDG strategist at Robeco, a Dutch asset manager, presented the “big picture” to help investors integrate the UN’s 17 Sustainable Development Goals (SDGs) into government bond portfolios.

Today, there is policy disconnect in emerging markets and $2.6trn (€2.4trn) annual financing gap on the SDGs to 2030. Much more investment in social wellbeing and safeguards for nature are needed, he said, “But what can we do as investors?”

He made the case for government bonds as a sustainable investment asset class in their own right, beyond green bonds and sustainability-linked bonds, which despite growing popularity only make up about 1-2% of the total bond market. There is huge scope for more, he suggested.     

Investing in better policymaking is a start, he said, but for that we need to know which “governments are good for the SDGs”. The sovereign SDG rating offers some insights, but it is too correlated with income, according to the World Bank. That means the likes of Finland and Sweden do well, but investing there won’t help bridge the SDG finance gap.

So his group came up with a new metric called the ‘Country SDG Score’, which analyses firstly if countries have good SDG policies via a series of 100 variables. Then there is a priority-setting based on how badly the country needs investment. Thirdly, the countries’ behaviour (governance, respect for human rights etc.) is reviewed to deliver a scale of plus-minus points at each step and a total country score.      

The public-private tandem

Wim Vandenhoeck, senior portfolio manager at Invesco, an institutional investment advisor, talked about the nexus between public and private capital in creating investment “synergies” in food and water systems, infrastructure, disaster protection, etc. to boost resilience in vulnerable regions.

He told the story about South Africa’s robust water management response in the face of worsening drought to show that tackling the “real impacts” of climate disasters is possible.

We have only scratched the surface of the “adaptation” market, he said. The UN estimates that a further $300bn is needed in emerging markets until 2030. Sovereign funds deploy about $100bn a year, as part of the Paris Agreement, leaving a “significant” shortfall for institutional investors to back fill.

Upfront costs and other concerns about early risk are currently holding them back. He advocated a blended structure with a “junior class” of impact-oriented investment helping to de-risk a “senior class” with a more traditional risk-return profile.

And still emerging

A discussion on leveraging the SDGs to bridge funding gaps in emerging markets followed. Lisa van Splunteren, investor relations and business development manager at Triple Jump, a Dutch impact investor, and Laure Wessemius-Chibrac, managing director at the Netherlands Advisory Board on impact investing, explored what is really preventing more investor engagement, and what can be done to mobilise capital aimed squarely at real-world impact on the ground.  

Another panel in the afternoon explored the sometimes hairy subject of impact measurement and management (IMM) in both standardised and bespoke forms, how current practices and new frameworks are affecting impact investing in fundamental ways, and the growing importance of peer-sharing and benchmarking IMM best practices.

No single standardised approach works for all cases and permutations in the complex world of ESG and impact was the broad conclusion. Yet the panellists – Adrien Gruson, senior associate at Impact Institute, Christophe Bochatay, head of ESG and impact at Triple Jump, and Wouter Koelewijn, senior advisor Europe to the Global Impact Investing Network (GIIN) – all made strong cases for greater discipline in IMM.  

Rosie Rankin, investment specialist director at Baillie Gifford, the Scottish-headquartered asset management firm, gave a colourful account of why listed equities deserve their place in the impact toolbox. Experience with Baillie’s Positive Change Fund has taught her to be wary of over-stressing risk-return evaluations in impact investing. She said criteria like accessibility, scale, additionality, and measurement offer just “the right amount” of information for a balanced risk-return on a “Goldilocks asset class”.

Nicolas Thomas, private equity investment manager at Pictet Asset Management, a Swiss bank, took a different view on how to invest in environment-related companies generating alpha “beyond market” returns using the planetary boundaries as a tool. It is by no means an easy thing, he stressed.

He talked about Pictet’s investments in the whole spectrum, from venture to buyout, across themes, and its pairing of impact to the nine recognised “boundaries” that should not be overstepped – climate change limits, biosphere integrity, ozone depletion, ocean acidification, etc. – and clients’ growing awareness of and demand for lifecycle analysis and better metrics and reporting.

He said Pictet’s “game in the co-investment space” is, firstly, to make a convincing case in the “thematic environment”,  to raise more capital and show investors that over time it is a “proper way to make money”. From there, they take it “deal by deal” based on solid financial analysis aligned to clear KPIs like avoiding waste and so on.

Investors get the approach, he said, because they increasingly know that we have passed the “nice to have” stage; we now really “need to have” change in the way the investment industry works.

For more on this topic, see our related story ‘Key highlights: Impact Investor Annual Conference’

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