Ethical Finance Round Table: Impact Investing – Can it save capitalism?

The 24th Ethical Finance Round Table was hosted virtually on Wednesday 26th August 2020. Before introducing the session, GEFI Global Steering Group member and event chair Graham Burnside reminded us of the opportunities the virtual round tables have provided us, with the speakers taking part from three different countries.

Entitled ‘Impact Investing – Can it Save Capitalism?’, the session considered the role of impact investing as we shift from ‘shareholder capitalism’ towards ‘stakeholder capitalism’. Impact investing is an exciting and rapidly growing industry powered by 1,300+ investors (such as asset managers, foundations, banks, development finance institutions, family offices, pension funds and insurance companies) who are determined to generate social and environmental impact as well as financial returns. This is taking place all over the world, and across all asset classes.

The first speaker was Dean Hand, Research Director at The Global Impact Investing Network (GIIN). Presenting from New York, Dean introduced GIIN’s 2020 annual Impact Investor Survey report, which places the impact investing market size at roughly $715 bn. She focused on two key findings of GIIN’s research:

  1. The first was that whilst impact management and measures (IMM) practices have matured, opportunities remain for further refinement. Respondents to the survey highlighted substantial progress in research and the sophistication of IMM over the last decade. By far the biggest concern over the next five years, was the threat of “impact washing”. Almost all investors target social impacts (96%) and 60% targeted both social and environmental, which, Dean suggested, demonstrates how interrelated the two are for market investors. The most common SDG targeted was found to be SDG 8 (‘decent work and economic growth’) followed closely by SDG 1 (‘no poverty’). A number of frameworks to measure and manage impact have emerged in response to the growing interest in impact investing. 89% of respondents now use external frameworks, with the UN SDGs the most popular. This could go some way to address the issue of impact washing.
  2. The second key finding Dean covered, was that impact investors hold a positive outlook for the future, despite the headwinds. 99% reported that their impact was in line with or outperformed expectations and 88% also highlighted that this was also true of financial performance. Although many expect a financial underperformance as a result of the COVID-19 pandemic, 18% felt that their impact performance will still exceed expectations. The majority plan to maintain their capital commitment plans for 2020.

The next speaker was Tribe Impact Capital’s Amy Clarke. Amy started by posing the question as to whether we should save capitalism and whether it was the right tool for the challenges ahead? She positioned inequality and inequity as unintended consequences of the current financial system and, argued that while impact investing is part of the required system upgrade, it is not the whole solution.

Amy gave examples of several trends she has observed in the impact investing sector. The Make My Money Matter campaign was offered as an example of citizen empowerment where consumers are provided with the knowledge and tools to demand to better influence where their pensions are invested. According to Amy changing human capital is coming in the finance sector and the focus on increasing diversity and inclusion will ensure that financial institutions better represent the societies they serve. One thought that Amy felt would be controversial was that GDP should be laid to rest with real measures emerging as an alternative. Some cities are already transforming using Kate Raworth’s doughnut economy model. Amy concluded with a question around whether capitalism can survive the wave of change coming, or will it emerge as something different?

The third and final presenter, Azman Mokhtar, was speaking from Malaysia and offered his experiences of delivering true value in the wake of the Asian financial crisis. Azman began working at Khazanah Nasional in 2004, developing an investment style called ‘Building True Value’, delivering through financial, economic, and societal returns.

The project ran from 2004 to 2018, with the portfolio increasing in value 3.5 times, despite no inflow of funds. It also saw economic returns through job creation, transformation of strategic companies and knowledge development. Societal returns were improvements in education, poverty alleviation and reskilling. One example of the project’s work given by Azman was after the restructuring of Malaysia Airlines following two high-profile air disasters. The restructure meant laying off 6,000 employees and through the project, $50m was invested in a reskilling centre for those no longer working. To conclude, Azman felt that the project demonstrated that it is possible to deliver ‘true value’ over long periods of time.

As ever there was no shortage of questions during a lively Q&A session. Which covered topics including the drivers behind the confident outlook for the impact investment sector and how to develop an environmental impact investment approach in mature political economies.