For a number of years, Al Gore, climate change activist and Nobel Prize winner, has been advocating a capital shift to sustainable solutions. At the recent Impact Summit Europe, hosted by impact advisory firm Phenix Capital, he told an audience including Queen Maxima of Holland and global pension funds, that they should “boldly seize the opportunity to be part of the sustainability revolution”. Generation Investment Management, the investment boutique he co-founded in 2004, has $15bn invested in sustainable businesses.
But he also appreciated a concerted shift from thinking rooted in the past to new ways of investing would not be easy. Here are some of the takeaways from the Impact Summit Europe.
Create a shared language around impact investing
Challenge: Peter Malik, Director at the Global Impact Investment Network (GIIN) said fragmented language around impact investing was still a big challenge. “General partners [private equity firms] still spend hours trying to convince limited partners [investors] that impact investment is not concessionary and has business value,” he said.
Action: Michele Giddens, partner at Bridges Fund Management spoke about a coordinated global project aiming to get a consensus on a shared language around impact investment. The Impact Management Project includes Dutch pension plan PGGM, Swiss bank UBS, the Ford Foundation and others. Giddens agreed that a lack of a shared language for impact was a problem, “those who ask advisors about building an impact investment portfolio often get blank stares,” she said.
Challenge: Developing effective, cost-effective impact measurement systems.
Action: Dimple Sahni, Senior Director Impact Investing at Anthos Fund & Asset Management, says it has hired a data scientist to analyse the outcomes of its impact investments to identify correlations. She says this will help the family office, which asks for quarterly reports on impact, to track interventions that are working and which aren’t to inform their allocations. Theo Clement, Managing Director at UBS Asset Management, spoke about developing a quantitative impact measurement framework, with PGGM, with the involvement of scientists.How to practically implement impact strategies into an institutional portfolio
Challenge: Pelle Pedersen, Head of Responsible Investment at PKA, spoke about operating in a conservative industry. “There is a clash of mindsets between the old school and new school,” he said. “If an organisation cannot manage that well you’ll never scale impact investment. You must speak the same language as the portfolio manager.”
Action: Johanna Koeb, Responsible Investment Analyst, Zurich Insurance Group, described portfolio management as a complex game of Tetris – where you need to have the right shaped tile to fit into a puzzle. “If you understand the Tetris game you either work from the inside out or carve out a tile and change the game.” She said Zurich was doing the former, “we look at where we have the largest pipeline and aim our energy there. We can do real estate, private equity and infrastructure debt. So our best instruments are green bonds, social bonds and sustainability bonds,” she said.
Challenge: PKA’s Pedersen said his fund was committed to investing in renewable energy, already allocating €2bn into wind parks globally, but he said: “the financial authorities all over Europe, and in Denmark don’t believe we should be taking that risk, they don’t believe we should be investing in alternatives so they want to regulate us when it comes to investing in alternatives like renewables like solar. On one side they ask us to invest in sustainable, on the other side they say you don’t know what you are doing.” In a session on managing “impact risk” delegates suggested that regulators distinguish more risk categories to reflect growing investment in renewables and impact investment, and even provide concessions for these types of investments.
Action: Al Gore said: “I hope that some of you can help to change the reluctance of regulators to recognise the new realities of the world – some would have advised not divesting from coal but some who divested from coal before the crash avoided a tremendous loss. When we are in the midst of such a dramatic revolutionary change it is understanding that some who are tied to ways of thinking rooted in the past will have difficulty making adjustments to the new ways of thinking. I am convinced this [sustainability investing] is the greatest ever investment opportunity in the history of the world and it shouldn’t be impeded by outdated thinking on the part of regulators.”