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Sponsored article


Impact investing: Exploring the drivers and benefits


Tim Manuel, UK head of responsible investment at Aon


The need to address major environmental and social issues, including the cli- mate crisis, resource scarcity and demographic changes, is driving a world- wide industrial restructuring and shifting the basis of competitive advantage among companies. This is leading trustees to reconsider their approach to investing. Many are asking how they can address some of world’s most pressing envi- ronmental and social challenges through their investments while continuing to deliver the competitive returns needed to get the best outcomes for their members.


Impact investing offers a way to do this. Designed to deliver investment returns and positive impacts for people and the planet, it differs from traditional investment approaches in the following ways:


– Impact investments must have an explicit intention to drive specific positive social and environmental change


– As well as measuring returns, investments are also measured by the progress they have made towards stated environmental and social aims.


The potential benefits are considerable, which explains why this is one of the faster growing segments of the responsible investment universe. From a recent survey by the Global Impact Investment Network (GIIN), impact allocations to public equity grew at the second fastest rate after real assets.1


The financial case for impact investing As global megatrends make the future look very different than today, investment managers with the ability to identify and act on environmental and social challenges are likely to have a fuller understanding of companies’ true risk and opportunity profiles. Identifying and investing in companies that are better positioned for the future will increase the odds of achieving improved financial performance over the medium and long-term. Early adopters of impact investing may also benefit from a positive tailwind to returns over the short to medium-term. Increasing regulation and policy actions, coupled with megatrends and concerns over transparency, are beginning to influence investor preferences, leading to increasing demand for a smaller universe of highly-rated sustainable investments and reducing demand for lower-ranked companies. This could lead to strengthening valuations for sustainable investments, driving valuations higher and supporting a return premium over the near term. Further positive spill-over effects, which benefit all stakeholders, flow from being part of the solution. Companies with a positive impact on environmental and social outcomes, mean they are better posi- tioned to bolster economic and market performance, while fewer risks materialise than would otherwise be the case. This can result in a virtuous cycle that helps everyone, including trustees and their members.


Opportunities to deliver impact Impact initiatives range from specific objectives, such as a desire to improve the lives of certain demo- graphic groups, to broader initiatives that encompass several global issues. Climate change and natural disasters, concerns around nationalism and protectionism, and socio-economic inequality emerged as the top three issues keeping investors awake at night in Aon’s 2019 Global Perspectives on Responsible Investing report2


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22 November 2019 portfolio institutional roundtable: Responsible investing


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