The latest Spear’s Breakfast Briefing tackled impact funds –what they are, what they aren’t, and why we should all care. Emelia Hamilton-Russell reports
‘Impact investing’ - a concept almost unheard of just ten years ago - is today worth £15 billion in the UK alone, and is expected to grow exponentially over the next decade, with some experts predicting it will be worth £48 billion by 2027 in Britain alone. Broadly understood, impact investment is a strategy designed to make money while doing good for society and involves investment in organisations or funds that provide a financial return that runs alongside measurable social returns.
Industry leaders from some of London’s top family offices, banks, and sustainable companies came together at the Spear’s breakfast briefing at Brown's Hotel in Mayfair this week to push past the headlines and discuss the fundamentals of impact investing - how wealth managers can choose organisations with measurable environmental and social impact that run alongside growth and competitive financial returns. In a discussion titled ‘Happy returns, how impact investing can transform your portfolio,’ invitees from across the finance, wealth management and sustainability sectors heard from Victoria Leggett, head of responsible investment at Union Bancaire Privée (UBP); Mark Campanale, founder of the Carbon Tracker Initiative and senior adviser to Consilium Capital; and Rupert Welchman, co-manager of the UBAM – Positive Impact Equity.
Spear’s senior researcher David Dawkins chaired the discussion, and kicked off by asking the assembled experts why impact investing seems to be having a moment, and whether investors should take it seriously. The answer quickly emerged: ‘Bluntly, the planet is in a pickle, and that’s putting it mildly,’ declared Leggett, who said that impact investing not only ‘makes financial sense’ but is ‘absolutely essential when we think about the future of our planet.’
Campanale agreed: ‘The thing about the markets is that if we can’t put a price on something we don’t respect it. What’s the value of a lion? What’s the value of a blue whale? We can’t put a price on these things, but as investment managers, investors, and human beings, we need to broaden our definition of “value” and “return.”’ For him, the question for impact-investors is twofold: how can we make a positive impact, and – perhaps more pertinently - how can we avoid making things worse?
The rise of ESG funds over the last 10 years has been steady, and there is an obvious appetite for ethical investments. Goldman Sachs has entered the space, and large firms such as UBS have been busy setting up sustainable investment divisions. However, while the concept is simple, the investment fundamentals behind this pioneering strategy are not widely understood, and this uncertainty breeds mistrust.
So how do positive impact funds - like the one UBP have just launched - actually work? ‘What you need to do with impact funds is really look at every investment opportunity from the ground up,’ Leggett told to audience. ‘We only invest in 31 organisations, and there’s a reason for that. Each of those companies has earned its place. Our small stock holding means that the measurement of impact is robust, and we share that information with our investors. We can tell you exactly what each company does.’
Dawkins put it to the panel that positive impact funds are still in their infancy, currently representing less than 1 per cent of global asset base. Rupert Welchman offered some cautious optimism, explaining that one of the reasons impact investing is still regarded as niche is because – despite the demand – impact funds remain relatively inaccessible. Welchman also points to the common misconception that the more pronounced and measurable the social impact of a fund, the lower the return. This is, according to Welchman, ‘absolutely not the case.’ The fact that the oil extraction industry is at a 20 per cent low is a case in point: ‘Some will say that it’s down to market fluctuations, but the truth is that the appetite for harmful investment strategies is simply not there.’ Sensible, impactful businesses, he says, almost always make for better returns long-term – ‘some people find it difficult to believe that you can run these strategies and outperform.’
The panel was keen to emphasise that impact investing is not to be confused with philanthropy: it’s about generating return, but it’s also about non-financial returns, i.e. a measurable way of seeing the impact that your investment is having. How ‘impact’ is defined and measured is currently left to the discretion of the fund manager, but this is something that is likely to change over the next few years. For Leggett, it is imperative that the impact investment industry expands and regulates sooner rather than later: ‘We talk about stock market growth, population growth, GDP growth, the rising middle class. It’s growth, growth, growth - and it’s all great. However, there’s one thing that isn’t growing and that’s the planet,’ she told the audience. ‘We cannot grow infinitely with a finite resource.’
The event was held in association with Union Bancaire Privée