Roundtable – Impact investing
IMPACT INVESTING: QUESTIONS AND ANSWERS
Investing to earn a return while making a positive environmental or social impact is a growing market. Indeed, more than £500bn globally was working to make a difference in 2020. To find out how investors are approaching such strategies, we brought asset owners, consultants and analysts together to discuss the market.
portfolio institutional: Melanie, is impact investing universally popular across your schemes? Melanie Cusack: There is a mixed reaction, which might be a generational thing. There is still a fair bit of history around the argument that doing something good with your money means compromising the level of returns you get. We have to overcome that misnomer, as it has been proven not to be the case. There are still a lot of people who believe that and argue that sponsors will not want to give up returns, which is a lame argument. It is a slow process. The compliance work we have to do helps because it makes peo- ple think about it sensibly, but the active impact has not happened, as yet, as much as it should have. Naomi L’Estrange: Specific active impact investments are still perceived as quite difficult. We need more help from con- sultants to bring the right funds to boards. Nonetheless, across the board we are try- ing to monitor the impact of our invest- ments and there are several changes going on across our portfolio but there is a lot more to do.
PI: In what ways can investors make an impact with their capital? Aaron Pinnock: Impact investing is a con- tinuation of our responsible investment process. It is not a carve out of funds to the side, but an approach to increase the general impact of our portfolios. We are trying to make our direct holdings
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carbon neutral and increase the net biodi- versity gain where we can. On the man- date side, we are always looking for impact or ESG-aligned investments. It is as much an advocacy or engagement approach with our companies and man- agers as much as it is trying to find new investments. Oliver MacArthur: On manager selection, we help clients with potential strategies they can deploy, from ESG to impact within public equities. From our own influence, in discussions with managers we share what we have seen from other managers that perhaps they might consider applying in their portfolios, such as using a particular framework.
Allowing clients to have the tools is one element, but then also using our position as a gatekeeper to share best practice where we see it and show how we are thinking about impact.
PI: Is there a lot of interest among Aon’s clients for impact investing? Tim Manuel: There is interest, but there is no one-size-fits-all conversation with trus- tees. I walk into trustee rooms and are faced with a whole spectrum of positions and counter arguments on this. It is important to go through a process, which looks like what we went through a few years ago on responsible investment, where education is important at the out- set. Then engaging with the right stake- holders – whether that is the trustees, the
company and the other advisers – to make sure everyone is on the same page in terms of understanding. Then it is impor- tant to think about what trustees are trying to achieve and get that articulated, so good decisions can be made down the line.
PI: What trends are emerging in the impact market?
Bella Landymore: There is huge interest, but there is a lot of misunderstanding about impact investing and confusion around what action you can take. We as an institute are set up to grow the market in whichever way we think is appropriate and helpful to our stakehold- ers, from trustees to consultants to fund managers.
The misunderstanding that impact invest- ing involves sacrificing financial return is a myth that we have set out to bust, along with the idea that impact investing is not compatible with trustees’ fiduciary duty. We have looked at that in different stages. We have tackled the fiduciary duty issue through legal analysis with City law firms, ratified by the Association of Pension Lawyers, to demonstrate that impact investing is compatible with fiduciary duty.
Then how to put it into the context of the investment decisions trustees make. What does it mean to set impact objec- tives? What does it mean to measure, monitor and report on your impact and financial returns? What criteria are you going to use for your investment consult-
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