Overthrowing the “dictatorship of profit”, BlackRock’s impact investment ambitions and impact measurement were some of the themes at this year’s GSG Impact Summit.
“We value ecology, community and generosity. But we also value our own comfort, prosperity and economic growth. How do we reconcile this?”
This question was posed at the opening to this year’s Global Steering Group (GSG) on Impact Investing Summit in Buenos Aires.
Now in its fifth year, the GSG Impact Summit has grown nearly ten-fold in terms of attendees, who now come from 45 countries. The GSG network, chaired by Sir Ronald Cohen, has today 32 country national advisory boards or NABs, seeking to catalyse impact investing.
At this year’s summit, Ghana and Zambia joined as NABs and the United Nations Development Programme and the GSG agreed a joint plan to unlock capital towards the UN Sustainable Development Goals (SDGs).
Opening the event, Krisztina Tora, the GSG’s Market Development Director, noted a high-level change in the conversation.
“This year, I had the privilege to travel to 15 different countries, meeting with ministers from Singapore to Ghana. They are not asking ‘why?’ now, but ‘how?’ They are really interested in the intricate technicalities of setting up an outcomes fund. And I’m sure you are experiencing these kind of changes in your country.”
But she also noted the inherent tension in reconciling social and environmental impact with a financial system focused on financial risk and return.
“Dictatorship of profit”
Sir Ronald, the private equity pioneer who is one of impact investing’s leading figures, was forthright in his address to delegates. Cohen, who as a child was forced to seek refuge in the UK from Egypt, spoke of “overthrowing the dictatorship of profit” and focusing on “human outcomes”.
For a number of years, Sir Ronald has been repeating the mantra of “risk, return and impact.”
“Capitalism and democracy are being threatened. It is clear inequality is a common theme” – Sir Ronald Cohen
It is the subject of his new book On Impact in which he speaks to “maximising both profit and impact at normal levels of risk, for the benefit of society as a whole”.
He has long been developing ways to measure impact, through instruments such as social impact bonds (where social outcomes are tied to financial performance) or more recently “impact-weighted accounts” with Harvard Business School.
Sir Ronald promotes impact investing as he believes that increasing gaps between the rich and poor lead eventually to social unrest. Reflecting on the rise in unrest, he said: “Capitalism and democracy are being threatened. It is clear inequality is a common theme.”
He spoke of a “third system” of “impact economies” beyond capitalism or socialism, where “we are not just expecting businessmen and women and investors to optimise risk and return without worrying about the terrible consequences they create on people’s lives and the environment”.
BlackRock’s impact investment aspirations
“I see a new investor enter the market every week.” – Amit Bouri
The event saw a lot of references to the US Business Roundtable’s open letter on moving beyond shareholder value. Amit Bouri, chief executive of the Global Impact Investing Network (GIIN), estimated the size of impact investing at $502bn, saying: “I see a new investor enter the market every week.”
And there were indications that the world’s largest investor BlackRock will start to get serious about investing for impact.
Eric Rice, a recent addition to BlackRock’s impact investing team, told the event that the firm had intentions to match up to CEO Larry Fink’s aspirations, as set out in his annual letter.
“When BlackRock came to me. I said ‘no way’. You are my punching bag for greenwashing (see RI coverage on this),” joked Rice who had previously spent 20 years at Wellington Management, most recently focusing on impact investing in public markets.
“I took a little bit of convincing. But I was promised to be able to continue doing that high authenticity impact fund in public markets. But also help set standards for what is sustainable and for what is impact. And distinguish between what is SDG alignment versus SDG advancement.”
“I think that is really important. Along with requiring impact measurement if something is going to call itself an impact fund, and require it has engagement. And be able to empower other investors to learn how to develop an impact fund.”
Rice, who has joined BlackRock as its Head of Active Equity Impact Investing, concluded: “If we want to move from billions to trillions, we will need to have different strategies.”
Measuring and incentivising for impact
Despite the good news stories, there was also recognition of the challenges the sector faces. The need for consistency in impact measurement and metrics was a key theme, as was the need for awareness building.
Steve Wang, Deputy Head & Portfolio Manager, Passive & Quant, Bosera Asset Management, announced the imminent launch of one of Asia’s first sustainable ETFs. He said research showed that “Sustainable Development 100” comprising of 100 Chinese sustainable stocks outperforms China’s most widely used benchmark CSI 300 consistently with annualised excess return of 4 per cent.
But he also said until recently he hadn’t heard of the term “impact investing” and retail investors still weren’t aware.
Nick Hurd, an outgoing UK minister who was integral in developing the country’s impact investment market, was candid about some of its failures. “I think we did not do well enough in the public narrative. We struggled to build trust around this whole agenda.”
He described the UK government’s efforts to catalyse social impact investment being perceived as a cover for public spending cuts. “So we did a lot of very good things in the UK (such as the world’s first social impact bond and social investment bank). It seems to be working but people didn’t quite like the narrative.”
Neil Gregory, Chief Thought Leadership Officer at the IFC, who is leading the body’s work on the IFC Operating Principles for Impact Management, talked about the industry having a credibility problem if fund managers were not incentivised for impact performance like financial performance.
Next year’s GSG Impact Summit will be held in South Africa.
RI was a partner on the GSG awards. The winners are as follows:
- GSG Impact Institutional Investor of the Year – PGGM
- GSG Impact Asset Owner of the Year – Zurich Insurance Group
- GSG Impact Asset Manager of the Year – Sonen Capital
- GSG Impact Market Builder of the Year – City of Buenos Aires
- GSG Impact Entrepreneur of the Year – Dr. Consulta
The winner of the GSG Impact Institutional Investor of the Year award, presented to an investment management firm which allocates significant capital to achieving social and environmental goals, went to PGGM for their commitment to responsible investment and efforts to reduce CO2 emissions.
The Zurich Insurance Group is this year’s winner of the GSG Impact Asset Owner of the Year award, given for showcasing their commitment to driving large-scale impact through their investment portfolio and for their innovative impact measurement initiatives.
The winner of the GSG Impact Asset Manager of the Year award is Sonen Capital for their multi-manager impact investment approach, which implements high impact strategies, measures impact through integrated financial and impact analysis, and reports on impact at the aggregate portfolio and underlying investee level.
Responding to the announcement Responsible Investor said, “Increasingly there is a clamour for more conscious capitalism, a shift from financiers simply considering risk and return to considering risk-return-impact. Honouring such impressive asset owners, managers and investors is an important step, a recognition of those leading change.”