By Torkil Hvam Sørensen & Christian Kingombe, 4IP Group, 25 September 2018
4IP had the pleasure of attending a seminar on impact investing organised by the Geneva Chamber of Commerce, Industry and Services (CCIG). With the title Impact investing: quelle contribution au développement durable? [Impact investing: What contribution to sustainable development?], the seminar invited three speakers to present their thoughts on the industry’s current status and road ahead.
Bernd Balkenhol Professor of Micro-Finance and Financial Inclusion from the Geneva School of Economics and Management (GSEM) and member of Geneva Finance Research Institute (GFRI) as well as founder of the ILO’s Social Finance Programme, argued that while impact funds certainly represent much-required influx of capital to financing the SDGs, investors should also look beyond impact investing and consider ESG impact. The current ratio of impact investments, Professor Balkenhol continued, is skewing towards financial services (19%) energy (14%) and Microfinance (9%). Professor Balkenhol urged investors to spread investments to areas that also require enormous injections of capital, such as Affordable Housing, Health, Access to Education and Healthcare as well as WASH. Among the many challenges that lie ahead for impact investing, Professor Balkenhol mentioned verification and certification, access to time series data, harmonisation of measures, and a set of standardisation impact measures. Green washing from mainstream asset managers is furthermore a concept that could potentially discredit the impact investing industry, as a dedicated niche of sustainable investing. Many investors are playing with the right words and declaring green and social impact in report mechanisms, while in reality the investments have little real substance. To overcome this large risk to the impact investing sector, Patrick Scheurle, the chief executive officer of Blue Orchard Impact Investment Managers, recently told ESG Clarity that “In our interpretation, impact investing requires an active element. It is investing with the intent to make a positive difference, to actively engage with the investees to translate that investment into making a difference. At the reporting level they need to measure and report on their achievements.”
Guillaume Bonnel from Banque Lombard Odier & Cie presented how his bank has transformed its conventional investment strategy five years ago to respond to services needed in developing countries. Since then the bank’s investment portfolio has to a higher degree steered its investments towards impactful projects. Lombard Odier aligns impact investments with three pillars: Inclusive finance, Sustainable agricultural development, and SME Impact (access to energy, water and education). To date, the bank has invested in, among others, microfinance to women in India, provided capacity-building farmers in Peru to obtain Fair Trade labels, provided access to energy in Tanzania and West Africa through solar panels, and funded WASH projects in Colombia. Mr. Bonnel mentionned how ICT has leapfrogged in developing countries and how this development have helped the bank’s projects in Africa. On a final note, Mr. Bonnel touched on the subject of Green Bonds that pioneered in Geneva 10 years back and a market with defined use-of-proceeds that has grown by 159% year on year since 2013. Lombard Odier is involved in areas where green bonds can help reduce carbon emissions while being deemed to help in the fight against climate change and support the United Nation’s 2015 Sustainable Development Goals (UN SDGs). This will require substantial investments from private capital markets (to complement government and philanthropy). But the UN SDGs also provide significant opportunities for investors. According to a report by the Business and Sustainable Development Commission, achieving the SDGs could open USD 12 trillion of market opportunities and create 380 million new jobs by 2030. Impact investors have answered this call by tailoring products and funds to specifically address the SDGs as presented by Lombard Odier at the CCIG seminar. Moreover, Fifty-five percent of the GIIN respondents track the performance of at least some of their impact investments to the SDGs, a quarter of which noted that doing so helps them conceive of new investment strategies and opportunities.
Neville White, the head of SRI policy and research at EdenTree Investment Management stated that “The limitations of the UN SDGs become apparent when utilised as a framework for measuring impact of portfolios. The overlay tools hurried to market so far seek to apply simple metrics to complex business models in a bid to provide a comparative, quantitative impact ratings methodology. While this approach seems straightforward at first glance, our deeper analysis shows several weaknesses embedded in these methods. Not least, the data available from companies on operational impact is limited.” Hence, it was very pertinent that the last speaker of the GGIG event was Sylvain Massot the Chief Financial Officer from IMPAAKT. Mr. Massot began his presentation by adhering to the GIIN definition of impact investing, which emphasises that only companies that have true social and environmental intentions may consider their investments impactful. He continued by arguing that conventional Private Equity (PE) measures may not be useful indicators to assess potential impactful investments. Also, Mr. Massot touched on the subject of regulation, mentioning Article 173 of the French Energy Transition Law, which came into force on 1 January 2016. “It strengthened mandatory carbon disclosure requirements for listed companies and introduced carbon reporting for institutional investors, defined as asset owners and investment managers.” Lastly, Mr. Massot addressed the lack of a unified or centralised institution or measure to determine impact. For example, Mr. Massot questioned Nestle’s impact investments and called for a unified solution in the industry. To achieve this, more collective intelligence and real time data should be shared in the impact investing community. In other words, IMPAAKT believes that “we can all participate in changing the world for the better by inciting businesses to become a driving force for good. For this to happen, we need to measure the real impact that companies have on the planet and society. We need to gain knowledge on how their operations and products affect our very lives for better, or for worse. So that we can invest in, buy from or work for the companies that bring the most positive contribution to our world.”
The CCIG seminar was concluded by a panel discussion with the three speakers and Andrea Baranzini from Haute École de Gestion (HEG-) Geneva. Among the many insightful thoughts that were shared during this panel debate, the topic of impact measurement was further discussed. A point was also raised that while ESG ratings, e.g. designed to help investors identify financially material sustainability-related risks, is a good practice, it does not always provide the needed solutions to fulfil the SDGs.
 See Figure ii: Sector allocations by AUM and percent of respondents in the eighth edition of the GIIN’s Annual 2018 Impact Investor Survey, which provides a detailed look at a diverse, dynamic, and growing impact investing market. In 2018 GIIN received responses from 229 organizations that collectively manage USD 228 billion in impact investing assets.