ESG Feature – Impact investing
ago. “I have seen investor interest, and importantly pipeline opportunities, evolve in scale to become much more main- stream,” he says.
In the early days, family offices, foundations and small institu- tional investors were investing in small-scale projects, such as social housing and eco-tourism. These strategies are now tar- geting a wider range of asset classes and industries, while the types of investors seeking to make positive impacts has also changed. “The largest private equity groups in the world often have billion dollar-plus impact investment funds,” Cooper- ström says. “Clean tech investment is seeing a second wave of popularity. Sustainability is quickly becoming, if it has not already, table stakes [the norm] for investing in many asset classes and industries.”
Impact investing has traditionally been a strategy where inves- tors work to make a difference in a particular geographic area. For Cooperström, this is another element of the investment strategy that has evolved. “Through my career, I’ve seen impact strategies evolve from smaller, often local opportunities like low-income housing to touch on a variety of asset classes that have more of a regional or even global impact,” he says. Manulife Investment Management’s work in timber and agri- culture is an example. Everything within these sectors, whether it be a forest or farm, starts at a local level. “Given natural cap- ital and natural assets importance to fighting climate change, the work we are doing here has regional and global impacts from carbon sequestration and biodiversity perspectives,” Cooperström says.
Another aspect of these strategies that has matured has been access to adequate projects. “10 to 15 years ago, deal-flow was much more sporadic and not of institutional quality,” Cooper- ström says.
The returns on offer were another deterrent, as was the lack of sufficient data monitoring the progress of investments that were not just seeking a financial return. “Once you get into a variety of impacts that might be more qualitative, that data tracking and management becomes a bit more compli- cated,” Cooperström says. “Again, we have seen a broad evo- lution here.”
Strong pipelines
The impact pipeline is more institutional-friendly these days and Cooperström is optimistic that this trend will continue. “Individual deals have scaled in terms of size and quality,” he says. “When I look at how investors might be remunerated for investing in impact, I see a lot of tailwinds. “For instance, in forestry, the protocols and the registries to provide structure for carbon returns have been established and evolved for 20-plus years,” he adds.
34 | portfolio institutional | October 2022 | Issue 117
Measuring, managing and reporting impact is vital to create positive change for people and the planet.
Sarah Gordon, Impact Investing Institute
Cooperström is also seeing new markets emerge that have impact as a core focus, such as biodiversity. “The British and Australian governments have emerging programmes that could provide biodiversity crediting and payments to manag- ers. We are seeing a broad evolution of how investors realise impact returns,” he adds.
What’s in it for me? Many asset managers have told me that one of the most com- mon questions they are asked by asset owners when setting an ESG strategy is “will I have to sacrifice return?” Yet one of the reasons to pursue an impact strategy is to earn a return. It is part of the deal, but, like all investments, it is not guaranteed. Returns investors can collect from investing for impact vary, Cooperström says. “That’s reflective of the diversity of asset classes and strategies that could fall under impact investing. “Historically, there was more of a trade-off between returns and impact, especially given the smaller scale and less institu- tional focus of past deals,” he adds. “Now the lines have been blurred between impact and returns.” Cooperström uses the firm’s work in forestry as an example. “We have been sustainably managing timberlands for more than 35 years. As we have expanded into impact investments, which have a more intentional focus on carbon sequestration, it’s not a clear trade-off because you are changing the risk-return profile as carbon prices, not timber value, are the main value driver.
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