Roundtable – Impact investing
work from an assumption that impact can be achieved everywhere. They know they do not have all the answers, but that is not their job. Their job is to ask the challeng- ing questions.
They have built impact objectives into their public equity mandates, their private market mandates and even, this might sound slightly ridiculous, where they have some synthetic exposures. They have challenged their managers to try and achieve it. I am not saying that they have done this, the point is they believe in it, they are try- ing, they are ask the challenging ques- tions and leave it to others to come up with the answers. I like how they approach it.
A core foundation to their mindset is that they are, as most pension schemes should be, a proper long-term investor.
PI: Is Bella right that this is part of the fiduciary duty? Pinnock: Impact investments are address- ing the systemic issues we face, not just as investors but globally. Climate change is probably the easiest one for people to get their heads around and to point to. This is where the TCFD is useful. If you do scenario analysis of your portfolio across varying global temperatures, we have found the most frequent result is that 3-degrees-plus is poor for everyone from a returns perspective. By investing into climate solutions, you are not just investing into assets that could potentially do well as a result of the climate transition, but they are also reduc- ing the systemic risk of your portfolio, as these assets are contributing to a lower temperature world. If you are investing into that lower temperature world, you are reducing the risk bucket of the entire portfolio if you are taking that long-term horizon.
That is probably the best way to look at impact investments, in that you are addressing the systemic risk your portfo- lio is prone to over the long term.
46 | portfolio institutional | May 2021 | issue 103
Landymore: When we worked to demon- strate the compatibility of impact invest- ing and fiduciary duty, it was for this point. It is about delivering long-term benefits to your members; it is not about wanting to do good in the world. That is not a pension scheme’s job. A pension scheme is there to deliver benefits to members.
This idea of a transitional mindset: that if we are looking at long-term investments, if we are looking at the outcomes for members who are going to retire in 40 years’ time, what will the world look like? What investments will have stood that test of time? It is not just about doing good. It is about taking a lens to your investments over the long term and seeing what is going to per- form best. Cusack: What is the point of having a pen- sion if you cannot spend it because the world has gone. It has taken it right down to the member level. There is no argument against doing this, whichever way you look at it. It is taking time. And pandemics do not help in terms of keeping the focus.
PI: Interesting point. How has the pandemic changed attitudes towards mak- ing social impacts? Landymore: The pressures on pension schemes are immense, with rafts of new regulation,
but we have seen record
inflows into ESG, and impact has taken centre stage.
It has not just been the climate crisis on people’s agendas. The health crisis, men- tal health and social factors have come to the fore, as have the links between the E and the S in ESG. This idea that to an extent climate change has caused biodi- versity loss, which is one of the factors that causes pandemics; recognising the interrelation between those two and that we cannot address one without taking account of the other.
That has been, for want of a better word, a
positive trend in terms of raising aware- ness and getting a focus amongst regula- tors and investors on the range of issues that need to be addressed.
PI: Has the pandemic hardened your resolve for investing to make social and environmental impacts, Aaron? Pinnock: Being a faith-based investor, we have always focused on the social side, nevertheless, the environment has been our number one engagement and ESG topic.
On the social side, the outsized negative effect that the pandemic has had on eth- nic minorities and other groups of peo- ple, as well as the Black Lives Matter movement, has brought diversity and inclusion to the front of our minds. We are doing a lot of work on that. The key workers debate has been interest- ing. We are looking at ways in which we,
Oliver MacArthur Senior consultant, Impact Research Lead Aon
as investors into big tech and other com- panies that directly and indirectly impact key workers, can influence that dynamic. These are two interesting social areas that we are trying to use our voice for. MacArthur: There has been a greater accel- eration on the environmental side where companies are clamouring to commit to a net zero target. Last year, partly due to the pandemic, we saw a better environmental outcomes with carbon emissions down by around 7%. But to hit the net-zero targets by 2030 is going to need a substantially greater reduction, which is scary consid- ering how the world changed last year. On the social side, we saw Covid exacer- bating inequalities in society. People who can work from home maybe did better than key workers who were regularly exposed to risk of the virus. Internationally, we are seeing the differ- ence between the countries that have the
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