9-Apr-20

A blueprint for impact investing

We are living through unprecedented times as a result of the Covid-19 pandemic. Businesses, economies, supply chains, workplaces and consumer habits are facing unique challenges and it is difficult to assess the scale and damage of what’s to come. Society will recover, but as the world opens again for business, we must be cognizant that many of the most pressing challenges facing us, including climate change and societal inequality, will not have gone away – they will have become increasingly urgent.  With this in mind, there will be tremendous opportunity to put capital to work in innovative ways, delivering profit with a purpose.

In 2009, the Monitor Institute commissioned a report entitled ‘Investing For Social and Environmental Impact’. In this paper, the authors stated: “Our research indicates that this emerging industry (impact) has reached a transitional moment in its evolution. It is poised to exit its initial phase of uncoordinated innovation and build the marketplace required for broad impact…”

It is now over ten years since this report was published. Since then the impact investing market has transformed by more than tenfold, standing at $502 billion in total assets in 2019. There is a growing pool of institutional and individual investors who demand more than just a financial return from their investment – and a broad range of profitable asset groups focused on addressing the most significant problems across inequality, education, social housing, the environment and healthcare.

A clear market demand

There is consensus amongst economists, business leaders and investors for the need to increase efforts in addressing the challenges we face. As a result of the current crisis the urgency to find effective solutions has never been greater.  

Even before coronavirus, the world had been falling short of the annual USD 5-7 trillion target to reach the 17 UN Sustainable Development Goals (‘UNSDGs’)– the global framework designed as a ‘blueprint to achieve a better and more sustainable future for all’. In 2018, UBS estimated there was a minimum USD 1.5 trillion shortfall per annum required to achieve the goals by 2030. This figure is likely to grow as we confront the enormity of the challenges ahead.

As governments commit capital to support businesses and families at this time and institutions around the world face increasing pressure to change their behaviour, it is those navigating solutions to the pressing challenges we face that stand to benefit in the long term. It will be the companies that understand and address the growing market opportunity that will prosper. 

Take the example of Tesla. Much has been said about the company, but the results speak for themselves. During the gas guzzling noughties, this is a firm that saw a growing market need for a better type of vehicle, knowing that electric cars represented the next step for automotive transport. By attacking a serious problem with a relentless focus – global warming - Tesla emerged as the lightning rod for the industry, forcing the old guard, Daimler, Volkwagen and General Motors to follow suit. Tesla demonstrates the market demand for companies driving innovation in the area of climate change.

It is said that the present is pregnant with the future

"We are in the midst of an uncertain moment in our history. Manoeuvring a pathway forward will require a collective effort from all of us to find and nurture profitable solutions to the myriad challenges we face."  

As we assess the forces at play, including the extraordinary actions of governments, politicians and business leaders and the broad range of industries channelling efforts to respond to this crisis, there is an increased necessity for us to collaborate into the future.

Within our space, it will be reputable funds, with knowledge and experience in not only administering but applying industry best practices in measuring impact returns, that will be fundamental for both individual and institutional investors alike.

There is clearly opportunity for investors to profit from doing well. There is and will continue to be a broad choice of investments available which deliver benefits and contribute to the solutions we as a society want; whether in renewable energy, clean transport, social housing or clean water. It is the companies capable of capitalising on this growing demand that will succeed into the 2020s and beyond.

This article was written by Triple Point's Hal Briggs

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