INVESTMENT ACTIONS

Invest with impact

Impact investing is gaining interest as a growing share of investors seek tangible progress on environmental and social goals alongside financial returns. We believe public equity markets have historically been overlooked in the impact investing space.

Overview

To holistically support an impact enterprise’s enduring success, we believe impact investing in public equities should be built on three interconnected pillars:

  1. additionality through the investor’s contribution;
  2. additionality through the investee (the company); and
  3. additionality through the asset class.

What to expect

01

Contribution from the investor

Public market impact investors can adopt five best practices to create impact: invest with a long-term, ownership mindset; create a better marketplace for responsible exits; invest capital directly; engage on impact outcomes; increase visibility.

02

Contribution from the company

A business qualifies as impact only if it meets the criteria of materiality and additionality. Materiality ensures a focus on companies that place impact at the core of their business, while additionality guides investment towards disruptive innovation.

03

Contribution at the asset class level

The global need for impact capital is greater than what could conceivably be provided by the private markets. Public equities and bonds offer the potential to put capital to work toward social and environmental progress at unprecedented magnitude.

Definition of impact investing

Impact investments are investments made with the intention to generate positive, measurable social and environmental impact alongside a financial return. The practice of impact investing is further defined by core characteristics: intentionality; use of evidence and impact data in investment design; management of impact performance; contribution to the growth of the industry.

Contribution from the investor

Impact investors, with their natural long-term horizon, can afford an impact company the benefit of focusing on its long-term goals. Additionally, impact investors offer a more responsible exit from private investment for impact companies through patient capital and a long-term partnership. Furthermore, investors can create impact by participating in capital raises which provide additionality to the impact company. Finally, investors can engage with companies on impact progress, and increase attention to often overlooked impact enterprises.

Quotation start

61% of respondents focused on private equity impact investing identified the lack of suitable exits as a key challenge.2

Quotation end
GIIN 2019 survey

Contribution from the company

A business qualifies as impact only if it meets the criteria of materiality and additionality. We typically define materiality as having greater than 50% of a company’s revenues from products and services helping to solve a major social or environmental problem. To meet the additionality criterion, a company’s products or services must address a need that is unlikely to be fulfilled by others (such as competitors or governments).

Contribution at the asset class level

Quite simply, the global need for impact capital is an order of magnitude greater than what could conceivably be provided by the private markets. For developing markets alone, we face a shortfall of approximately US$2.5 trillion annually to meet the SDGs by 2030.1 Given the magnitude of the need and the extraordinary opportunity, we must find ways for public markets to scale impact investing with integrity. By offering impact investing through public equities, a broad new cohort of investors can participate and provide much needed capital.

Invest with Impact: The case for impact investing in public equities
The paper makes a case for impact investing in public equities through reference to additionality through the investor’s contribution, the investee, and the asset class. We believe public equity markets have historically been overlooked in the impact investing space.
Report cover
Quyen Tran
Director of Impact Investing
Eric Rice
Head of Active Equities Impact Investing
Brian Deese
Former Global Head of Sustainable Investing

1“World Investment Report,” United Nations Conference on Trade and Development, 2014.
2“Annual Investor Survey 2019,” the Global Impact Investing Network, 2020.

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Capital at risk: The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested. Past performance is not a reliable indicator of current or future results and should not be the sole factor of consideration when selecting a product or strategy. Changes in the rates of exchange between currencies may cause the value of investments to diminish or increase. Fluctuation may be particularly marked in the case of a higher volatility fund and the value of an investment may fall suddenly and substantially. Levels and basis of taxation may change from time to time.

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