A billion-dollar environmental outcomes fund to be co-launched by Al Gore; a comparable framework for measuring companies’ social and environmental impact; and a new manifesto for capitalism. These were some of the big ideas at this year’s Global Steering Group (GSG) for Impact Investment Summit.
The GSG Summit, held this year in Delhi, is in its fourth year and has grown almost ten-fold from 100 people in London in 2014 to 905 participants from 54 countries this year. Attendees included former US Vice President Al Gore, Prince Maximillian of Lichtenstein and Former Tata Chairman, Ratan Tata.
“Even last year in Chicago we had 560 participants from 40 countries,” says impact investment pioneer and GSG Chair Sir Ronald Cohen. “You can now feel that impact investment has become a mainstream subject.”
The GSG plans to have a framework for “impact-weighted financial accounts” by the end of 2019
But as mainstream funds start to develop impact investment products, some are concerned about the level of commitment to the generally accepted approach of delivering financial return alongside measurable social and environmental impact.
“There is an inhibiting sense of confusion about what impact investment stands for,” says Sir Ronald. He describes two pathways discussed at the GSG Summit to tackle this: delivering a clear view of what impact stands for and developing a framework for impact measurement.
On the latter, Sir Ronald says the GSG has set itself a target that by the end of 2019 it will have a framework for what he calls “impact-weighted financial accounts”.
“The Summit focused on the obstacles to helping shift a bigger chunk of the investment market. So, impact investment proper is $230-250bn today and the ESG market on the other hand is estimated to be $23trn,” says Sir Ronald. He says if you put measurement on the ESG market you could find huge impact is being delivered.
The idea for “impact-weighted financial accounts” is to have two sets of company accounts: traditional financial accounts and those adding coefficients, or a numerical value based on the impact being delivered through products, employment and use of natural capital, for example. This would lead to an “impact-weighted profit” to which a governance coefficient could also apply, says Sir Ronald.
“You do the same for the balance sheet,” he continues. “You have financial accounts and impact-weighted financial accounts and this would enable comparison between the financial and impact-weighted performance of different companies. So, you could look at two companies each making a $1bn of profit but know on an impact-weighted basis this one is making $300m and the other is making $1.5bn.”Sir Ronald says this approach will help the private sector deliver much greater impact through their normal activities. “The private sector can create ills but it also can create a lot of good if you can prevent harm. If you can harness innovation and capital and talent to deliver impact then the private sector can amplify the roles of government and help us make significant progress in meeting the huge social and environmental challenges we face.”
The project won’t be easy, with 150 different approaches to impact measurement currently in use, but in partnership with the Impact Management Project, and Sir Ronald as Chair, he hopes to arrive at something sufficiently dependable and workable in a decent timeframe.
It could help address concerns of greenwashing if every company had a set of accounts measuring their impact. Sir Ronald says the incentive for companies to follow this approach will be shareholder and consumer pressure. And already in Europe there are moves, spearheaded by, among others, Michelin CEO Jean Dominique-Senard, for companies to have a broader purpose alongside delivering profits described as a “more human-faced, sustainable capitalism”.
Sir Ronald also launched what could be described as a new manifesto for capitalism at the Summit. “Impact investment is trying to remedy a really fundamental problem with capitalism, in that it doesn’t distribute prosperity anywhere near as widely as it should,” he says.
On Impact is a “Guide to the Impact Revolution”, which Sir Ronald describes as a “plain English description of what impact investment involves and how it puts us on to the path of impact economies.”
The Summit was held in the week the UN Intergovernmental Panel on Climate Change released its latest report warning the planet only has till 2030 to prevent catastrophic climate change. Speaker Al Gore, the Nobel prize winner and renowned climate change campaigner, announced that with the GSG he would raise a billion dollar environmental outcomes fund.
Sir Ronald says: “Al came to the summit to really unite the environmental and social streams under this effort to move to impact economies where environmental and social considerations are taken into account.”
Sir Ronald says the environmental outcomes fund will signal to the world that the environmental and social overlap and efforts to improve society and the planet are one and the same thing.
Gore leads Generation Investment Management with CEO David Blood, who chairs the UK’s Social Finance – the outfit founded by Sir Ronald Cohen.
At the Summit, Social Finance India was launched to “reflect the growing power of India’s impact market” which is a billion-dollar-a-year industry today, according to GSG. The launch came with the announcement of two new £1bn impact investment funds – the $1bn India Education Outcomes Fund to improve the quality of education outcomes in India and the $1bn India Impact Fund in partnership with the UN SDG Finance group, looking to enable greater access to debt for education, agriculture, health and affordable housing. Govind Sankaranarayanan, who held a number of leadership positions at Tata Group for over two decades, will be the CEO of Social Finance India.