Guest Blog Post written by Jonelle Maltay during TBLI CONFERENCE™ Nordic 2015. Views and opinions are that of the writer and are not the official views of TBLI CONFERENCE™.
Perspectives from panelists for Trends in Impact Investing: Nordic and Beyond with Karin Malmberg, Ruth Brännvall, Rodolfo Fracassi & Veronique Menou
The general consensus amongst those in the impact investing community is the need to make it more mainstream. During the workshop on impact investing developments in the Nordic region and beyond, the panelists echoed a resounding theme which was the idea of taking impact investing to wall street and main street by expanding the investable sectors. There is room for growth in renewable trade, social housing, SME banking and more.
The ideal scenario would be to have an impact investor network and knowledge platform, which could provide advice on impact investment strategies to fit specific investor profiles. Regardless of whether an investor is impact first or finance first, to get involved in the impact investing space there must be some willingness to look beyond financial return and see the added non-financial value of social or environmental impact. Investors also need to stop viewing impact first versus finance first as either right or wrong, when in fact they are just two sides of the same coin depending on priority.
One of the key issues is sourcing investment opportunities that have potential for impact as well as financial return – and can be accurately measured in both aspects. For entrepreneurs, an investment readiness program could provide advice on funding and capitalization, answering questions related to identifying investable projects and defining appropriate methodologies and criteria for impact measurement. It is also important to assess what the gaps are in the market for specific investments as well as what existing financial instruments are available and can be expanded for this purpose.
There has been growth in the impact investing market with the emergence of new funds and new players. Opportunities that were once not considered to be impact investing now are, and this has brought about a growing demand for clear standards and strategic solutions for challenges arising from data availability, appropriate measurement guidelines and clearly defined risk-return projections. According to panelist Rodolfo Fracassi, who is a Director at Main Street Partners “the real asset owners are the public” and these buyers want sustainability to play a bigger role in mainstream business.
Investors are asking how they can gain more exposure to the impact investing space, but they are still faced with issues arising from limited size and illiquidity. A more scalable approach is needed whereby they can make positive impact through investments of adequate size without harsh liquidity constraints. First the questions must be answered of what impact investing really means, and how we can avoid “green washing”. Investors need to get on board with a long-term vision and stop thinking in the short term.
Impact investing is different in the Nordic region than in emerging market context for instance, so it is also important to put things into a geographical context as well. For example, a key issue in Europe is social integration, and perhaps investing in migrants of Europe who have been here for 10 years or more but still have not successfully integrated into the workforce may require a social program or service to address this. The Nordic region has some of the highest unemployment of foreign residents in Europe and this is an issue that can be tackled with results that provide measurable impact.
Impact investing can be defined as an investment activity to create intended, measurable, positive benefits for society and environment across asset classes. The driving force is the opportunity for blended returns, which are a combination of financial as well as environmental and social returns simultaneously. Impact investing can even be increased in existing business through: product innovation, market innovation and a forward looking approach to assess what is the demand for the future. It is always easier to guide a company towards impact investing if their corporate activities already indicate some level of interest or convergence toward the impact investing space.
The Key social challenges in the impact investing world right now concern impact through products and services as well as operations. To assess a company it is important to look at what proportion of their revenue is linked to “green investments” for example, and perhaps determine whether that portion qualifies as impact by setting a minimum threshold of 50% for instance. Companies can also improve their standards by increasing their level of disclosure, since more disclosure means a higher level of accountability. Finally, one of the best ways to guarantee sustainable products, services and operations is to embed a sustainable strategy into the company’s overall strategy as an integrated approach rather than a compartmentalized one.