Big change in the impact investing landscape

As the director of Membership at the GIIN, Peter Malik has seen the impact investing-landscape change dramatically over the last couple of years.

The evolution of impact investing
The GIIN has played a key role in promoting impact investing. Peter Malik, director of membership at the GIIN expects this role to change now that this form of investing is maturing: “The market has reached an inflection point where there are several new entrants, like pension-funds, insurers, endowments and family offices. This is driving a shift from the what to the how. In the first period of the GIIN has been spend on explaining what impact investing is. I predict that the next step in the GIIN-evolution will be to discuss with the market how to actually do it.”

From niche market to mainstream
Malik has no clear preference whether impact investing defines global finance or the other way around: “As long as impact is a methodology of allocating capital that is fully embedded in the investment process. One way or another we will have to end up in a space impact is simply one of the main ways of allocating capital.” In his eyes, the discussions at the Impact Summit Europe clearly marked a step in the right direction: “It was a rigorous debate how to increase allocations by asset owners and an intense discussion on how to measure and report on impact. This went beyond happy talk; it was rolling up the sleeves and really working on ways to tackle the main issues facing impact investing.”

How large asset managers can promote impact investing

Marie-Anne Allier is deputy global head of fixed income at Amundi. In that role, she has a clear view on the role large asset managers can play in promoting impact investment.

From ESG- to impact investing
There are several ways in which asset managers can contribute to growing impact investment from niche-market to a mainstream investment style. In the eyes of Marie-Anne Allier, deputy global head of fixed income at Amundi, it helps if a company has a rich history of ESG-investing: “Amundi is the largest asset manager in Europe and we have ESG in our DNA. We launched our first SRI-fund almost thirty years ago in 1989. Today, Amundi has integrated ESG in almost every investment. Of our EUR 1.000 billion assets under managed, 95 percent is managed with one or more ESG-criteria. Thanks to our scale, we have the opportunity to engage a lot of companies. In addition to voting at shareholder meetings, that means we sit down with the CFO and if necessary push for the adaptation of best-practices in the field of environmental, social or governance issues.”

Green bonds vs. grey bonds
Green bonds offer the opportunity to scale up the size of impact investments. “From the perspective of risk-approach, there is no difference between a green bond and a grey bond. For an investor, green bonds are the simplest way to contribute to a greener economy with lower carbon emissions,”, explains Allier. At Amundi, these emissions are the most important way to measure the impact of an investment: “There is no simple way to take all effects into account. Therefore we have chosen to focus on the amount of Co2 avoided. In the meantime, we are increasing our knowledge and we are pushing companies to share their best practices in the field of impact investing.”

Finding balance between positive impact and financial returns

As CEO and CIO of Storebrand Asset Management, Erik Jan Saugestad faces the challenge to find the right balance to creating a positive impact and generating financial returns. 

Beyond the niche-approach
There are several ways large asset managers can make an impact with the way they construct their portfolios. “We try to generate impact by overinvesting in certain companies focused on new energy, education or health”, explains Erik Jan Saugestad, CEO and CIO of Storebrand Asset Management: “ On the other hand we chose to avoid investing in the coal-industry or in companies violating human rights or with other social issues. For us as a large investor looking to build scale, we have to go beyond the niche-approach that some people associate with impact investing. The current impact allocation is going into alternatives, where we see very clear ways to both target and measure impact. The other current is going to low-cost smart beta listed equity strategies, where it is crucial that we are able to implement impact in the investment process.”

Mobilize the masses
Cooperation is the key in getting the message across, explains Saugestad: “If we want to move things forward with impact investing, it is important to share our insights and experiences with different stakeholders like regulators, investors as well as competitors. People recognize that we need to mobilize the masses to have a very clear communication to end-consumers, instead of focus on independent solutions.”

Long term focus is essential for impact investing

Most investors are looking too much at the short term. In the eyes of Marilou van Golstein Brouwers, chair of the management board of Triodos Investment Management, incorporating true cost into investment decisions can help to shift the focus to the long term.

Investing to create real value
For impact investing to truly take off, institutional investors have to change the way they look at the world. “A large part of the investment world is focused too much on the short term”, according to Marilou van Golstein Brouwers, chair of the management board of Triodos Investment Management: “The key question for the traditional investment industry is if they invest to make money or if you invest to create real value.”

Focus on true cost
The key to creating real value lies in incorporating the true cost of products and services into investment decisions, argues Van Golstein Brouwers: “One of the first things that has to change is that we need to look at the true cost of products or services. For example, we are not looking after the real returns of our investments if we do not take into account what the harmful effects are of carbon emissions of the companies in which we invest. Governments have to step in to create a level playing field. There is also a huge role to play for investors, but we still have a long way to go. I hope that we soon reach a tipping point, when investing for a positive impact will become the new normal.”

Put good intentions into practice now

More and more players in the financial world are joining the talks about impact investing. That is definitely a positive development, but we should not wait to put good intentions into practice warns Pelle Pederson head of responsible investments at PKA.

Be practical about impact investing

There is a lot of talk about impact investing, but to really initiate change it is important to adopt a more practical approach argues Pelle Pederson, head of responsible investments at PKA: “Collaboration is key to scale impact investing. As institutional investors, we can create a demand for impact investing. That is just one side of the equation. For impact investing to grow, we need development finance institutions, banks, the civil society and governments to collaborate. The current stakeholders in the industry have the tendency just to talk. We need to bring the right people at the table and be practical about impact investing.”

Green bonds vs traditional bonds
PKA has a particular focus on climate change and impact investments. A large part of the fixed income portfolio consists of green bonds: “The difference in the way we analyse a green bond and a traditional bond is non-existent”, says Pederson: “You have to make sure to use the same criteria for both. If you have to comprise or risk or return, the green bond-market will never be credible in the long run. As investors, we have to be sure that the bond is truly green. Therefore we have built our own green bond-framework and we require the companies in which we invest to report on the actual mitigation-effects every year.”

The role of government in impact investing

Government has a huge role to play in promoting impact investing, according to Jacco Heemskerk, president CFA Society Netherlands.

The role for government
At the Impact Summit Europe several institutional investors gave a clear message that they are embracing impact investing. In the eyes of Jacco Heemskerk, president CFA Society Netherlands, other parties have to follow their lead: “Institutional investors supply the money, so it makes sense that parties that demand the money, like large corporations, have to follow suit. The same goes for politicians. 

Government can play a huge role in promoting impact investing by setting the boundaries and creating long term goals for cities and municipalities in which sustainable entrepreneurs can invest.”

Bridging the gap
“CFA Society is an organisation that is in between the academia and the practitioner”, explains Heemskerk: “We can provide the tools to provide more value for the society at large. Impact investing is very much an area where we need to give our members the opportunity to do just that.”

Transition from ESG to impact investing

Gerald Cartigny – chief investment officer of MN – and Karlijn van Lierop – director of responsible investment & governance at MN – explain how an institutional investor can scale up from doing no harm to doing good.

From ESG-investing to impact investing
The adoption of the SDG’s have triggered a new phase in the way institutional investors approach ESG-investing. “MN has been at the forefront of ESG since 2008 and currently 83 percent of all our assets of roughly EUR 125 billion is ESG-proof”, tells Gerald Cartigny, chief investment manager of MN: “However, the discussion on the SDG’s has caused a shift from wanting to do no harm to wanting to do good. We are implementing impact investing among all asset classes. The market is still young. There are a lot of opportunities, but also a lot of challenges. 

It is difficult to find investments with decent size for institutional investors, there is a lot of risk in some propositions, sometimes the fees are too high and it is still difficult to measure the impact of most investments. With our impact investments, we focus on four themes: energy transition, waste, access to finance and affordable housing.”

 

Creating an impact-framework
“In the last couple of years there was an increase in the number of interesting proposals for our clients that did not fit their mandates”, tells Karlijn van Lierop, director of responsible investment & governance at MN: “We have started an intense dialogue with our clients to learn in which themes they are interested, which regions they prefer and what kind of investments they are looking for. This allowed us to create a framework for finding the right solutions and get started with impact investments.”

Impact investing in family offices

There are several differences in the way family offices and large institutional investors are approaching impact investing, according to Dimple Sahni, senior director impact investing at Anthos Asset Management.

A track record with impact
Several institutional investors are at the forefront of impact investing. However, some family offices have a much longer track record with making impact through their investments. Dimple Sahni, senior director impact investing at Anthos Asset Management, tells that the family behind this single family office has been active with philanthropic investments for the better part of a century: “It predates the SDG’s and the family has already build an investment theses around what it sees as its core values. They already have done a lot of the hard work and while we may tie the investment-approach a little bit to the SDG’s, we are not going to use an SDG-overlay.”

The toolbox of a family office
“The benefit of working for a family office is that we have a different spectrum of instruments that we can apply to drive change”, explains Sahni: “In addition to listed equity and fixed income, our toolbox consists of grantmaking and program-related investments. The return hurdles vary by asset class, but for the impact portfolio as whole we hope to generate market-based returns. Just like institutional investors – only on a different level – it is a challenge for us to scale our impact investments. I say at every conference I speak at that we would like to be a secondary buyer of transactions, but my phone never rings. Apparently, the market is not quite there yet.”

How to implement SDG's and how to encourage institutional investors to scale up impact investments?

Gavin Wilson has been the CEO at IFC Asset Management since its founding in 2009. He explains how companies should embrace the SDG’s and how we can encourage large institutional investors to scale up their impact investments.

Business opportunity
There is a massive business opportunity for the companies that want to take advantage of the focus that the SDG’s are providing, according to Gavin Wilson, chief executive officer at IFC Asset Management: “The SDG’s are about eradicating poverty, ending hunger, fighting climate change and saving the planet. Of course, nothing is more important than that. The symbolism of the way all countries have agreed on the SDG’s is a rallying cry for the global community. We recently published a report on the business and sustainable development corporation showing there is a USD 12 trillion market opportunity for those companies that realise how this shift is taking place. My message to business leaders is that they should understand what the SDG’s are. They should also making their employees aware of these goals and inform their customers that they are implementing these goals into their business model and their mission.”

Impact investing: from niche to mainstream
An increasing focus of companies on the SDG’s is only part of the equation. Wilson sees ample opportunities for investors who embrace impact investing: “Business has to get on the playing field, but that also applies to the investment community. We need to mobilize the regular sources of finance. Pension funds and insurance companies have trillions of dollars to invest and there are several things we can do to encourage these institutions to increase their impact investments. We can improve regulatory environment for investors to make it easier to invest long term in developing countries and we should make better use of blended finance. Many large institutions are moving from being responsible investors to putting impact at the heart of how they valuate investments. It is a good start that some of these companies take a small part of their portfolio and invest it explicitly for impact. I have a feeling that they will do better with these investments than with their portfolio as a whole. And that will feed through in the way they approach investments. Even despite these developments we will have still have a scale issue in five years’ time because the challenges are truly monumental.”

Defining a framework for impact investing

Cooperation is key in defining a framework for impact investing and for improving data quality on the SDG’s, according to Brenda Kramer - responsible investment advisor at PGGM.

Creating a framework for impact investing
Impact investing is a relative new form of investing and the financial industry is still in the phase where it is defining the rules of the game, according to Brenda Kramer, responsible investment advisor at PGGM: “The SDG’s are useful investment compass, but we still have to decide how we measure if and how much an investment contributes to one or more of these goals. It is critical for the investment community to cooperate in defining a framework for impact investing. An example of such a cooperation is the way we are working together with pension fund APG to establish what qualifies as an investment in the SDG’s. And under the Dutch central bank there is a platform for sustainable finance where banks, insurers and institutional investors are creating a framework for impact investing.”

Improving data quality
PGGM has set a goal to grow the impact portfolio to EUR 20 billion in 2020. “We are looking to expand our impact investments in all asset classes to reach this goal”, explains Kramer: “At PGGM we are investing in infrastructure and private equity, as well as in listed equity. That allows us to increase the scale of impact investments in a pace that would not be possible by investing in start-ups. Going forward, as an industry we should focus on improving the data quality for both investors as well as companies. This will allow us to reveal what we are actually achieving, because just talking about the SDG’s is not enough to create impact.”

The biggest challenges in building an impact portfolio

Johanna Köb is responsible investment analyst at Zurich Insurance Company. She reveals what the biggest challenges were to build an impact portfolio.

The challenge to find the right investments
Zurich Insurance Group has USD 200 billion assets under management. These assets are spread out over 80 portfolios in 40 jurisdictions; all with different regulations. “For me, trying to find investments for a portfolio manager feels like playing a very sophisticated game of Tetris”, tells Johanna Köb, responsible investment analyst at Zurich Insurance Company: “It is not easy to select the right type of instruments, since we are looking for impact- or social investments that fit the specific need of a portfolio. We can look at private equity and real-estate, but our largest part of our portfolio is in fixed income. That is why we focus most of our impact strategies on green bonds, social bonds and sustainability bonds.”

Building scale
Scale is one of the biggest hurdles that Köb is facing: “In every investible asset class, we are dependent on the supply. In private equity our target is to invest 10 percent of our assets into impact private equity funds. Currently we are invested in three funds which combine for 2.5 percent. For green bonds we have a USD 2 billion target and we stand at USD 1.5 billion. Scaling in that segment is much easier, thanks to the sheer size of fixed income-markets and the rapid growth of green bonds. We are still dependent on supply. Therefore it is important to attend a conference like the Impact Summit Europe; to meet potential portfolio companies and to discuss ways on how to tackle hurdles and how to measure impact.”

The impact of land degradation and how to combat it

Land degradation has huge consequences for food security and biodiversity, while leading to increased poverty an migration. Gautier Quéru is investment director and LDN Fund project leader at Mirova and explains how to combat land degradation.

Land degradation
Plant life provides 80 percent of our human diet and we rely on agriculture as an important economic resource and means of development. Forests account for 30 percent of the Earth’s surface, providing vital habitats for millions of species and important sources of clean air and water; as well as being crucial for combating climate change. Land degradation is a huge threat to both agriculture and forests, explains Gautier Quéru, investment director and LDN Fund project leader at Mirova: “Land degradation is the result of poor agricultural practices, deforestation, urbanization, overgrazing and industrialization. Worldwide, 12 billion acres of land are being degraded every year. This has huge consequences for food security and biodiversity, while leading to increased poverty and migration. 

There is strong political support to reverse this trend. This can be achieved to decorrelating growth from further land degradation. NGO’s are promoting good practices, like agroecology and agroforestry. There are also opportunities for businesses sourcing sustainable commodities.”

Sustainable supply chain

Mirova is supporting sustainable supply chains and making sure that soft commodities we all depend on like cocoa, tea, coffee and cotton are produced in a sustainable way. Quéru explains that this approach to fighting land degradation generates several benefits: “From an environmental standpoint, it protects biodiversity and the water-cycle as well as water-resources. And from a social standpoint, these initiatives create jobs and help integrating women.”

How contributing to SDG's is inherent to ResponsAbility's investment approach

Rochus Mommartz is CEO at ResponsAbility. He explains why focus is key for ResponsAbility and how contributing to SDG’s is inherent to their investment approach.

Focus is key
The breadth of the concept of impact investing was one of the themes that drew a lot of attention at the Impact Summit Europe. The style currency spans asset classes ranging from direct investments to listed equities. Focus is key, in the eyes of Rochus Mommartz: “ResponsAbility is active in the field of development investing. We only invest in inclusive businesses in developing countries. These businesses have to contribute to the SDG’s. Since this still leaves us with a large universe of potential investments, we are focussing on three different sectors: agriculture, energy and the financial sector. Within these sectors ResponsAbility offers both private debt and private equity. This leaves us with six business-lines, which works out really well for us. There is great synergy between these activities. If we were to enter new sectors, the complexity would increase and we would run the risk of losing our focus.”

 

Contributing to SDG’s
The introduction of the SDG’s has created a framework for investors who want to contribute to certain goals that align with their mission statement or certain values within the company. At ResponsAbility, contributing to SDG’s is inherent to the investment approach explains Mommartz: “We invest in inclusive businesses. It is in their nature to contribute to SDG’s. For example, we finance companies which deliver accessible renewable energy-solutions to local businesses as well as in renewable energy projects. This way, we are basically building the infrastructure in developing countries. There are plenty of investment opportunities in our three focus sectors. However, there are still some hurdles into increasing the scale of our investments. One of the main bottlenecks is the availability of people with the skillset to implement the investment solutions. At ResponsAbility, we are building these capabilities organically. The speed with which we do that determines how fast we can scale our activities within a certain sector.”

Queen Máxima attends Impact Summit Europe 2017

On Tuesday morning 21st of March, Her Majesty Queen Máxima will visit the Peace Palace to attend the opening of the third edition of the Impact Summit Europe 2017, taking place on 21st and 22nd of March. Queen Máxima will be present at the summit in her role as a 'UN Secretary-General's Special advocate for Inclusive finance for Development' (UNSGSA).

Over the course of her visit, Queen Máxima will attend the opening keynote addressed by Mr. Peter Borgdoff, Director of PFZW on the role of institutional investors in building a sustainable future. She will also be present at the first panel discussion titled ‘Setting the scene: The role of institutional capital to overcome environmental and societal challenges’.

 

Panel members are Mrs. M. van Golstein Brouwers, Managing Director of Triodos Investment Management BV, Mr. G. Cartigny, CIO of the pension fund MN, Mrs. Giddens, Co-founder and Partner of Bridges Fund Management Ltd, Mr. J. Julicher, CIO, a.s.r Group Asset Management. Additionally, Queen Máxima will have an informal meeting with some of the attendants of the conference.

Read the complete press release here

Spotlight this week: Generating impact through Listed Equity investments

What is impact investing in listed equity?

Public equity as an asset class is often overlooked in the impact investing space. There is a widespread skepticism surrounding what exactly classifies as 'impact' in the listed equity investments. Practices such as negative or exclusionary stock screening and best-in-class ESG screening are commonly grouped under umbrella terms 'responsible investing' or 'sustainable investing'. Such practices however may lack the intentionality, additionality or measurability required to qualify as impact investments.

Beyond the passive screening-based sustainable investments, listed equity impact investments are investments actively made in public companies whose products and services directly address environmental, social and governance challenges. Going further, these challenges can even be classified in terms of the UN Sustainable Development Goals.

 

Next to providing one-on-one meetings with listed equity impact managers in InvestorConnect sessions, the program will also offer two sessions to provide institutional investors with a better understanding of public equity impact investing:

  • Panel discussion on contributing to SDGs and generating impact in listed equity
  • Impact academy on measuring impact and sustainable development in listed equity investments

 

The Impact spectrum which distinguishes between responsible investing, sustainable investing and listed equity impact investing can be seen here. (Source: Bridges ventures, 2012)

Al Gore keynote speaker at Impact Summit Europe 2017

During the third edition of the Impact Summit Europe on March 21st, Al Gore will share his vision on sustainable investing at the Peace Palace in The Hague, The Netherlands.

With an Oscar winning movie, several No. 1 international bestselling books and a Nobel Peace Prize, Al Gore is well known for his work on climate change. But that is only one of many projects in the life of the former U.S. Vice President.

His efforts have led to the undeniable fact that sustainable investing is the future, but today’s question is how to apply the theory in practice?

As founding partner of Generation, an independent investment management partnership, he believes in the transformative power of allocating capital to businesses that deliver positive, productive change. Generation’s approach to investing is based on an investment process that fully integrates sustainability analysis into decision-making and is focused on long-term performance. 

As founding partner of Generation, an independent investment management partnership, he believes in the transformative power of allocating capital to businesses that deliver positive, productive change. Generation’s approach to investing is based on an investment process that fully integrates sustainability analysis into decision-making and is focused on long-term performance. As a mission-driven organization, Generation’s vision is to see long-term oriented, sustainable investing become best practice in capital markets and sustainable capitalism become the enduring economic model.

Gore supports the view that the responsibility not only lies with government but also with the private sector. The key is to mobilize private capital and collectively fight climate change, amongst other sustainable development goals. By doing so, investors no longer have to choose between impact and return. For the past twelve years, Generation has delivered better returns with sustainable investing than nearly every traditional fund manager.

Gore will share his views on the drivers of return in the transition to a sustainable economy. 

 

Signatories of Dutch SDGI agenda publish report on “Building Highways to SDG Investing’

Amsterdam, Dec 7, 2016

The signatories of the Dutch SDGI Agenda presented their report “Building Highways to SDG Investing’ at the GIIN Investors Forum on December 7 in Amsterdam, in the presence of over 700 investors.

In their report, the signatories recommend priorities for maximizing ‘SDG investing’ (SDGI) – at home as well as abroad. They offer concrete ways to accelerate and scale investments into the SDGs. Further conversations will take place over the course of December, including a cross-sectoral stakeholder consultation at the Dutch Central Bank on the 14th of December. To access the report please click here 

Photo with Minister Ploumen and Signatories' Board Members

In alphabetical order:

  • Bas Ruter, Director Sustainability, Rabobank
  • Claudia Kruse, Managing Director Sustainability & Governance, APG
  • Carolien de Bruin, Founder & CEO, C-Change
  • Frank Elderson, Executive Director, DNB
  • Gerrit Zalm, Chief Executive Officer, ABN Amro
  • Herman Mulder, Chairman of the Board, SDG Charter
  • Hans van Houwelingen, Chief Executive Officer, ACTIAM
  • Jack Julicher, Chief Investment Officer, ASR Nederland
  • Karl Guha, Chairman Executive Board, Van Lanschot Kempen
  • Lilianne Ploumen, Minister for Foreign Trade and Development Cooperation
  • Linda Broekhuizen, Chief Investment Officer, FMO
  • Maarten Edixhoven, Member of the Board, Aegon
  • Marilou van Golstein-Brouwers, Managing Director, Triodos Investment
  • Peter Borgdorff, Managing Director, PFZW
  • Peter Ferket, Member Executive Commitee, Robeco

 

Leading Dutch financial institutions embrace United Nations Sustainable Development Goals

At the 2nd Impact Summit Europe (22 March 2016), Frank Elderson, Director of the Dutch Central Bank (DNB), and Hugo von Meijenfeldt, Implementation Coordinator for the SDGs within the Dutch government, invited investors, banks and other private sector actors to recommend ways in which they can help advance a transformative, forward-looking SDG Investment Agenda (SDGI Agenda).

18 Dutch financial institutions which together manage assets of over €2.8 trillion participated in the SDGI Agenda initiative, which is the first of its kind to gather national pension funds, insurance firms and banks around a shared SDG agenda.  

Spearheaded by a total of 21 signatories, the results of this initial assessment will be presented to Liliane Ploumen, minister for Foreign Trade and Development Cooperation, at the GIIN Investors Forum on December 7 in Amsterdam, in the presence of over 700 investors.


Phenix Capital is a proud signatory of the Dutch SDGI agenda

Read the press release

Read NRC Next's Interview of Else Bos, CEO PGGM