Lack of good data is holding back impact investing from delivering a holistic approach to sustainability that it promises.
Impact investors said better data and metrics would help them identify the best paths forward during the ‘Pensions with impact – Adopting a transitional mindset for a better future’ panel discussion at COP26 on Wednesday. Panellists said asset owners should ask harder questions of investment consultants to find out their true ESG credentials.
The panel, which included Sacha Sadan, Director of ESG at the Financial Conduct Authority (FCA), Shami Nissan, Head of Responsible Investment at emerging markets asset manager Actis and Debbie Fielder, Deputy Head of the Clwyd Pension Fund, were each firm in their views of shortcomings currently limiting the growth of impact investing.
Sarah Gordon, CEO of the Impact Investing Institute (III), opened the discussion saying UK pension funds’ control over a vast swathe of invested capital gave them power to change investing habits. “We know most people want their money to make positive social impact,” said Gordon. “It’s about getting your money to make a difference.”
Money to invest
Just 1% of pension savings across 37 OECD countries equates to US$320 billion, meaning that there is huge potential for pension schemes to capitalise upon impact investment opportunities, Gordon said. These opportunities can have a positive impact and drive the transition to a net-zero economy while making a financial return, she added.
Information on impact investment opportunities and the resources to encourage pension funds to invest more sustainably are available. However, the panellists said it was uneven.
Sadan called for more industry-level coordination and emphasised the need for greater use of data, both in impact investing and more broadly.
“We need sustainability metrics. The FCA is supporting standards and we want it so that everyone in the chain can measure effectiveness,” he said.
Sadan joined the FCA earlier this year from Legal and General and Investment Management, in a newly created role, to develop its approach to sustainable finance domestically and internationally.
He emphasised that while many corporates and investors were committing to targets and goals, particularly in relation to net zero objectives, they were sometimes for dates far in the future. “2050 is nice but we need metrics year-by-year,” he said.
The FCA published a Discussion Paper on potential criteria to classify and label investment products this week as part of the FCA’s new wider ESG Strategy, also released this week.
The need for consistent and accurate metrics has been pushed by members of the impact investing community for some time. Existing frameworks include the Operating Principles for Impact Management and the Global Impact Investing Network’s COMPASS, while investors are increasingly measuring impact via contribution to UN Sustainable Development Goals.
More action needed
Fielder said Clywd had seen little pushback from adopting impactful goals in its investments but were becoming increasingly hampered by a rise in the number of investment consultants offering impact investment support. “Every consultant is claiming they’re impactful,” Fielder said.
Fielder highlighted the need to work with local communities and look at funds in more granular detail to achieve good results across. Clywd has specifically invested in local opportunities in north Wales and has seen encouraging returns, while exploring new ways to further strengthen their own community with training and entrepreneurship work.
“Impact is just sensible investment with excellent returns, and we’ve had no issues with returns,” she said. “Imagine investing is like a 1,000 piece jigsaw – every piece counts.”
Nissan suggested impact investing as a sector is still in the process of scaling up to the level where it can achieve substantive change, especially in Actis’ specific areas of expertise in the emerging markets.
When asked by moderator James Broderick, Director at the III, what those in the industry needed from stakeholders to work together more efficiently she said that funds need to be much more stringent – and at times ruthless – in looking for partnerships. “We need to be asking difficult questions, asking for qualitative and quantitative information. Dig, dig, dig.”