Impact investing – ESG Feature


“Depending on where carbon prices go in the future, you could have a different range of potential returns compared to tradi- tional timber investing. And those returns could also be higher,” he adds.


And for one pension scheme, their impact returns are indeed higher. Clwyd Pension Fund had £2.4bn in assets under man- agement in March, with 4% of those allocated to impact invest- ments. The returns from the impact portfolio were more than three times greater than the fund average in the first quarter. Its total assets and private market assets returned 13.3% and 26.4%, respectively, while the fund’s impact investments yielded 40.3%.


Guiding light


On the data side, more frameworks are being developed to help managers’ report on impact’s progress and outcomes. The UN’s Sustainable Development Goals feature heavily in these frameworks. There is GIIN’s (Global Impact Investment Net- works) IRIS standard, the Global Reporting Initiative, the Sus- tainable Accounting Standards Board and the Task Force for Climate-related Financial Disclosures. “We are seeing more consistency in the data reporting,” Cooperström says. The increasing capital flowing into impact funds, larger play- ers entering the market and the growing number of frame- works show that the market has matured and is on its way to being a mainstream strategy.


“The trend clearly shows that we are moving away from tradi- tional investing focusing on returns only, towards impact


investing focusing on positive environmental and social out- comes as well as financial returns,” Gordon says.


Cleaning up To create real change, impacts have to be made in the sectors and companies which are most responsible for harming the ecosystem and the climate as well as making people’s lives harder. And investors are working to make impacts in unethical sectors, Cooperström says, adding that they are trying to influence change through the threat of divestment in an attempt to make capital raising more difficult and ultimately more expensive. Gordon is also seeing shareholders using their influence to create change in the extraction industries. “Companies in these sectors require investors to support and drive their transition out of fossil fuels, and shareholders have a huge responsibility here,” she says. “We believe that divestment is a “last resort” after other methods of engaging with investee companies to drive change have proved unsuccessful. But, of course, policy- makers and regulators have an even more important role to play here. It is only by acting together that we will drive the change in these industries that needs to happen.” Other approaches include investors pursuing direct shareholder activism through voting for who sits on the board, while others try to harness the skills and equipment within industries like oil and gas to help make a positive change.


When I look at how investors might be remunerated for investing in impact, I see a lot of tailwinds.


Eric Cooperström, Manulife Investment Management


Extraction companies have the expertise and technologies needed to build a sustainable future, such as offshore opera- tions which could be used to expand wind power in the energy mix. “We are seeing some of that already,” Cooperström says. “There is a willingness to either promote investment outcomes through certain strategies like divestment or to work with those companies directly.”


Heading into the mainstream Cooperström has seen impact investing become a more estab- lished approach for institutional investors over the past 10 to 15 years and he is seeing signs that this is likely to continue. “We are seeing an influx of high caliber talent into the impact investing space,” he says. “That is in part reflective of younger professionals wanting to have an impact component integrated with their career.” For Gordon, these trends are part of what she believes is a move to impact investing becoming the norm. “Impact investing acknowledges the shortcomings of an approach to investing that is under high scrutiny and is addressing them,” she says.


“Of course, there is still a lot of work to do, but we believe that in the future, all investments will eventually become impact investments as companies will have to report and be held accountable for their positive and negative impacts.”


Issue 117 | October 2022 | portfolio institutional | 35


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