The United Kingdom has set itself the goal of being one of the world leaders in the growing field of impact investment. The recently created Impact Investing Institute is a sample of this.
The spirit of leadership and commitment is a positive thing. The capital of private investors is very necessary for the world to achieve the sustainable development goals of the Paris Agreement.
The importance of pension funds
More and more pension funds recognize the importance of these objectives. Also, meeting them will be in the best interests of their beneficiaries. As a result, interest in impact investments is increasing. This is excellent news because foundations, philanthropists, and publicly funded organizations, all pioneers in impact investing, do not have the same capacity as investors in capital markets. So they meet the needs in this area in the next decade.
However, there is a problem. The scarcity of investment opportunities for impact investors, especially for the larger ones. A survey conducted by Dublin-based investment manager KBI Global Investors with institutional investors and consultants to find out their views on impact investments. It shows that their main problem was finding suitable companies that are not listed on the stock exchange. They have social and environmental objectives in line with the principles of impact investments. Also, have the potential to generate profits.
Companies that support impact investment
One obvious solution is for pension funds and asset managers to invest in listed companies. Those, that are supportive of impact investments and at the same time make impact investments in companies that are not listed on the stock exchange. In fact, ruling out the possibility that listed companies could generate a higher net impact seems irrational. After all, any investment has an effect on the real world, and larger firms tend to generate the greatest effects.
Once institutional investors realise that they can use their influence to increase the positive impact and reduce the negative impact generated by listed companies. They will discover that there are an unlimited number of opportunities to help meet social and environmental objectives; many of them are directly relevant to the long-term interests and security of their clients and beneficiaries.
This is starting to happen, although usually without the “impact” label. One example is the work of ShareAction’s Decarbonisation Investor Initiative, a group of more than 70 investors in listed companies who pressure these groups to set ambitious climate targets, such as modifying their operations to use only electricity from renewable energy.
The project is a success. After discussions with select companies, big names such as Tesco, St Gobain, BT and Kingfisher made ambitious environmental commitments that closely monitore by the same investors who pressured them to take these steps.
Similarly, a coalition of investors in publicly traded companies that support impact investments has succeeded in getting companies in the FTSE 100 index to commit to paying the real minimum wage in the UK to all their employees and to supporting service providers. The aim of these investors is to reduce working poverty and huge wage inequalities.
Handbook about impact investments
The Global Impact Investment Network has recently published a handbook on the characteristics of impact investments. These include causing social and environmental impact, using evidence and data to establish each strategy and sharing performance information.
From 2020 onwards we will enter the decade in which the Paris objectives must be met. Achieving them will require all major investors, including all pension funds, to act as impact investors. And to achieve a large scale impact it will be essential for listed companies to establish very specific plans to meet these objectives.
(Featured image by Caroline Hernandez)
First published in expansion, a third-party contributor translated and adapted the article from the original. In case of discrepancy, the original will prevail.
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