Interest in impact investing has never been greater. Institutional investors have been developing their approach to environmental, social and governance (ESG) issues over many years. Now they are beginning to realise that negative screening is not the only or indeed the best approach to satisfying the demands of clients to be more proactive as responsible investors. Options include positive screening, engagement and impact investing – and the latter is the most pro-active approach.
According to Tideline, nine out of 10 of the largest U.S. asset managers have launched or are exploring strategies for impact investment. https://news.impactalpha.com/major-asset-managers-moving-slowly-but-surely-toward-impact-investing-aa37fc4c8fc0 Should we take this at face value and believe that asset managers are committed to the concept of impact investment? Or are they seeing this as another box to tick to back up their ESG credentials? The reality is no doubt a mixture of both!
People who are genuinely concerned to be responsible investors need to make sure that they are not just helping big investment institutions to ‘greenwash’ their portfolios. Understanding impact investment as a potential responsible investor and being able to access suitable investment opportunities is key. Identifying the risks and choosing appropriate investments brings different challenges to those posed by more traditional investing.
At the same time, organisations that need investment have to ensure that they are identified as suitable recipients. How do they ensure they are ready for potential investors and know how to approach impact investment? For many charities, social enterprises and NGOs this may be the first time they engage with the world of investment so the risks and challenges are also significant for them.
One of the important roles that Investing for Good plays is to act as an experienced intermediary between the very different worlds of investment managers and social enterprises, charities and NGOs. Language, culture, approach to business, timelines and expectations all need to be carefully explored, explained and developed in order for a fruitful, long term relationship to be brokered. Both parties need to understand:
- The distinction between impact measurement and management;
- what outcomes they both need (financial and social/environmental);
- How financial and social/environmental returns can be balanced;
- What data needs to be collected, analysed and shared.
Investing for Good was founded in 2004 on the basis of a simple insight: that the positive use of money can change the world. We were inspired by a new class of investments that mobilised the power of finance to catalyse social good. We believe that helping organisations from very different worlds to understand how they can work together for mutual benefit and helping them to prepare for impact investment is going to be an increasingly important role.
Sally Britton, Chair of Board