Almost every Head of State at this year’s Davos claimed that SRI was part of their national plan, with France’s President Macron making it particularly clear, says Katherine Brown, Head of the Sustainable and Impact Investing Initiative at the World Economic Forum.
In a wide-ranging speech at the annual global event in Switzerland earlier this year, Macron spoke to a framework for the ‘common good’ such as sustainable development, health, education, social cohesion, security and human rights. And he stressed that it was not only a duty for states to invest in common goods, but also for the private sector.
There hasn’t been a thoughtful conversation yet on whether failure is ok with impact investment at a larger scale
“It was remarkable to hear,” says Brown. “Nearly every single one of them at some point in their speech mentioned that sustainable and impact investing is core to their government. Macron made it very clear. Trudeau and Merkel made references in some thematic areas.”
Brown is speaking to RI in London at a conference on impact investing in the UK. Hosted by the London Business School, of which Brown is an alumni, the event discusses a new social impact investing ‘Implementation Taskforce’, set up at the request of Prime Minister Theresa May.
At the conference, Brown tells the audience that for years she had tried to get sustainable and impact investing on the agenda at Davos. This year, with no effort, there were ten sessions on the subject for private, institutional and public investors.
“It is the ultimate litmus paper that this is starting to take off,” she says. “But the number one challenge we see is a flotilla of capital coming at this space, which will be looking for a lighthouse. There is no target for large asset owners. Money isn’t an issue, but where they are targeting it is.”
Expanding on this in an interview with RI, Brown says, “We don’t yet have at a global level a recognised best practice. Everyone is looking around for this. Taxonomy and language [around impact investment] is a bit of a barrier, but not as nearly as much as it used to be. Mostly, the community wants to get on with it.“They say: ‘We get it. There are investment approaches that could help me realise the value I want to contribute to society. Now how do I do it?’”
Some of the barriers in this respect are a lack of investible opportunities for large asset owners and high due diligence costs. But one other key barrier is the perceived risk in trying something new.
“There is this constant conversation around risk. We are not talking about financial risk. The investors I speak to recognise the financial risk and that has been accounted for. It’s actually reputational risk they are worried about.
“We’ve been using financial metrics for generations. There is a risk element to it, but it doesn’t affect people and planet very explicitly. With impact risk you could invest in an intervention and there is a negative impact on society and environment. A lot of these large-scale investors find that a disincentive to take that leap.”
Brown says it’s a cultural issue. “There are some parts of the world where failure is ok because failure is iterative and you get to the good outcome by allowing yourself to fail and grow. But the large asset management community doesn’t feel that acceptance. They are not allowed to fail in something that is social and environmental in nature.”
She continues that there hasn’t been a thoughtful conversation yet on whether failure is ok with impact investment at a larger scale.
“The impact investment community has been very iterative and it has undergone a long growth process, but the larger capital providers are still going through that journey.”
In her role at WEF, Brown runs a number of projects to enable sustainable and impact investing. She says her unit are attracted to the intractable bits such as impact measurement and the investible landscape.
In the coming weeks, WEF and the UK Government are releasing a discussion paper on how governments are developing policy around impact investment. She says: “We want to catalyse this conversation amongst governments as a lot of them will come to us and say ‘Who’s doing impact investing well from a policy side?’ So many governments worldwide have gone through that thought process and we are sharing their stories.
“Governments really see the value in this. Especially in such an uncertain political climate, it is something tangible for them.”