Impact investing – ESG Feature


Investors are people with needs and wants: they need to make money to pay their members’ benefits and more and more of them want to make the world a better place while doing it. Enter impact investing, which is designed to achieve both, and is looking less like a niche strategy.


Impacting investing is stepping out of ESG’s shadow to be considered an investment strategy in its own right, but can it deliver? Mark Dunne reports.


Indeed, £58bn is working to make positive impacts in the UK, according to research by accountancy giant EY and the Impact Investing Institute, an organisation that promotes such invest- ment strategies.


Impact investing should not be confused with ESG, says Sarah Gordon, the Impact Investing Institute’s chief executive. ESG identifies risks to a company’s financial health, while impact investing targets a financial return from making posi- tive and measurable changes in society and the environment. “ESG is often passive, with a focus on avoidance, whereas impact investing intentionally seeks to deliver a positive bene- fit,” Gordon says. Eric Cooperström, managing director of impact investing at Manulife Investment Management, describes the strategy as a “sub-set” of ESG that focuses on producing “desirable ecologi- cal or social outcomes”.


“ESG and impact investing are not separate asset classes,” he adds. “They are investment strategies and styles that overlay existing asset classes like private equity, public equities, tim- berland, etc…” Gordon advises that those looking to adopt an impact strategy to define the outcome they want to achieve, which can be meas- ured “to hold yourself to account”. “There is a rapidly growing number of investors, including large asset owners, who want their investments to contribute to solutions to, for example, the climate crisis, which is extremely encouraging,” Gordon says. “Measuring, managing and reporting impact is vital to create positive change for peo- ple and the planet.” And more capital is being allocated to this goal than ever before. The assets held by European impact funds grew by 50% during 2021. Absolute flows to impact funds in Europe increased 44% to €31.6bn (£28.2bn) during 2021, up from €21.9bn (£19.5bn) the previous year. This, according to a report published by Morningstar and Zeb, a consultancy, is in response to rising greenwashing in the sustainable fund market. These funds would have traditionally flown into equities, but exposure to debt is growing. The share of fixed income within the impact fund sector increased to 24% in 2021 up from 20% a year earlier, according to the Association of the Luxembourg Fund Industry.


Coming of age


Impact investing looks very different today compared to when Cooperström started working in the industry almost 15 years


Issue 117 | October 2022 | portfolio institutional | 33


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