Impact Investing - More than Investing l Blackrock

For decades, the objectives of investors have revolved around personal retirement: accumulate wealth, and then generate income from that wealth. As a result, financial returns are accepted as the default performance metric—but what if investing could also address the world's social and environmental problems?

Key points

01

Invest for more

Investors can support positive social and environmental change by investing in businesses that could help tackle global challenges.

02

Measuring additionality

BlackRock identifies three pillars of additionality that help investors measure the impact that their portfolio may create.

03

Building a better world

Investing in companies that aim to help contribute to a better world by tackling global challenges has potential to combine financial return with real impact.

Invest for more

Impact investing is a sustainable investing approach that combines the intention to generate positive financial returns with positive, measurable social and environmental outcomes.

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.

What does positive impact look like?

The BlackRock Impact Team invests in public companies that they believe can address the world’s greatest problems. Here’s how these companies contributed to a better world in 2021.¹

157 million students and jobseekers

provided with education and support

286 million metric tons

of emissions avoided through the generation of renewable energy

190,000 families

provided affordable housing

200 million

water tests annually

1.7 billion patients

provided affordable healthcare

217 million individuals

empowered through access to financial services

¹Global Impact team based on analysis of company data and reports.

Source: BlackRock Global Impact Annual Report, July 2022

BlackRock’s approach to measuring impact

Impact investing is often associated with the UN Sustainable Development Goals (SDGs), a framework for ending poverty and protecting the planet. A company may appear to be aligned with these goals, but how do investors know if it’s actually making a difference?

Alignment to the SDGs is not enough to qualify as impact; we require that companies advance the SDGs by providing a solution that is additional, thereby creating genuine impact.

Quyen Tran Director of Impact Investing

The three pillars of additionality

Additionality in this context means that the outcome would not have occurred without the company's contribution; thereby creating impact.

1. Additionality from the investee

A company provides additionality if its products and services address a need that is unlikely to be fulfilled by others. The primary sources of company additionality are the:

Application of leading technologies

Deployment of innovative business models

Delivery of a company’s products & services to underserved populations

Those that face barriers in accessing services and resources

Investors can empower businesses to create positive impact through five mechanisms.

3. Additionality from the asset class

We also see a third pillar of additionality at the asset-class level. Complementing private market impact investing, we believe impact investing in public markets offers scaled solutions where there’s strong demand for urgent solutions but inadequate supply.

Of course, I demand a strong return on my savings, but how great that I can now also put those savings to work creating a better collective future.

Eric Rice Portfolio Manager & Head of Active Equities Impact Investing

Building a better world

In many cases, the greatest challenges can create opportunities for innovation. Here's a closer look at some challenges facing both people and planet, and the innovative solutions which aim to tackle them.

Pollution & waste

The extraordinary amount of waste produced by humans, including plastic waste, is endangering the ecosystem in which we live – and is expected to get worse. It is estimated that 1 million marine animals are killed annually by plastic pollution and that humans eat over 40 pounds of plastic in our lifetime.

Source: https://plasticoceans.org/the-facts/, Accessed 15 /10 /2022

Innovative solutions

Recycling is one important step in mitigating environmental damage, but far too many communities lack the infrastructure to support widespread recycling and waste reduction. We seek to invest in companies that remove such barriers, including reverse vending machines that support deposit-return plans.

Public health

Improving health on a global scale relies on basic access to affordable care. Before the COVID-19 pandemic, the world’s medical system was already stretched by a scarcity of physicians.² Many of the world’s poorest populations spend a disproportionate amount of their income on healthcare more than half a billion people have been pushed into — or further into — extreme poverty due to high health-care costs.³

Innovative solutions

Modernizing the doctor’s office

Investing in technology companies whose services lower administrative costs and increase productivity.

Leveraging existing technology

Recognizing the potential of telemedicine, which enables medical visits to be virtual. These services may be a long-term solution for underserved populations.

²Source: BlackRock Global Impact Report 2021, July 2022

³Source: https://www.who.int/news/item/12-12-2021-more-than-half-a-billion-people-pushed-or-pushed-further-into-extreme-poverty-due-to-health-care-costs accessed 19 October 2022

Financial & digital inclusion

A pathway out of poverty – the World Bank recognizes financial inclusion as a key enabler to reduce poverty and boost prosperity.¹ Unfortunately, affordable loans, insurance, savings accounts and digital payments are out of reach for about one-third of adults globally.²

Innovative solutions

We continue to believe solutions must be tailored to local needs. We continue to search for companies that help break down the barriers preventing underserved enterprises and individuals from being counted and included in our financial and social economy. For example, one of our portfolio companies in Brazil provides a digital wallet to help people who previously could not afford a traditional bank account obtain free online account.

¹https://www.worldbank.org/en/topic/financialinclusion/overview#1, 2021. Accessed May 2022.

² Demirguc-Kunt, A., Klapper, L., Singer, D., Ansar, S., Hess, J. Global Findex Database 2017: Measuring Financial Inclusion and the Fintech Revolution, 2018. 35

Why now?

Impact investing is not limited to the themes above. Around the world, social and environmental issues are capturing the attention of governments and society.

Ultimately, what’s needed are innovative solutions.

By directing capital to the right companies, we believe there is a potential to generate financial return while building a better world.

Why BlackRock for Impact Investing?

With sustainability as the new investment standard, investors require the right tools to evolve their portfolios.

The Impact Investing Team, led by Eric Rice, Portfolio Manager, collectively has 100+ years of industry experience. Investing in public equities, the team follows a robust investment process underpinned by the identification and approval of each business within the parameters of the UN’s SDGs.