Responsible investment

Impact investing: How private and listed markets offer choice for investors seeking positive change

Key highlights

  • There is demand for ESG to go beyond basic integration, towards positive impact

  • The rise of sustainability megatrends means it is possible to deliver impact in listed markets as well as private markets

  • The UN SDGs provide a very good starting point for identifying areas of significant unmet demand, and demonstrating long-term secular growth opportunities

  • In private markets investors have more control over operations to deliver targeted impact. Strategies can hold assets for a longer time

  • In listed markets, investors must deploy capital where they can show impact intentionality, materiality and additionality. Engagement is also used

  • Measurement remains a challenge and relies for now on robust frameworks and on verifiable, comparable data at the level of individual assets

Impact is now a twin-engined vehicle

We want to help build resilient economies that can thrive in a future that can thrive in a future that may look very different

Impact investing is helping investors tap into key financial markets megatrends while addressing some of our most important sustainability challenges. The sector has been built on powerful private market foundations, but a growing roster of large, listed companies are now providing products and services that can deliver positive and demonstrable effects for people and for the planet. This evolution is offering investors an important choice.

A central idea in the broad responsible investment (RI) marketplace is that long- term investors, regulators and governments share a common goal: To build resilient economies that can thrive in a future that may look very different. The scale of investment required is huge, and by remaining ahead of the curve in policy and consumer behaviour, there should be a clear opportunity set for both small- scale entrepreneurs and for the largest corporations on earth.

For those wishing to deploy capital to such companies, impact investing is a natural port of call – and it is now a twin-engined vehicle. The sector has always been at the sharp end of strategies that seek to embed environmental, social and governance (ESG) issues, but with private and listed markets both in play it is important to understand how each can help you to meet your investment objectives in different ways.There are, of course, common threads between the two segments, and this is perhaps most clearly seen in the role of the UN Sustainable Development Goals (SDGs).



Drilling down into the SDGs

The SDGs are more than colourful logos, they run deeper and wider and can highlight investability

In the listed market, AXA IM Core offers several impact strategies which reflect broad ESG themes. Amanda O’Toole, who manages Framlington’s Clean Economy strategy, notes the crucial role of the SDGs in articulating secular growth opportunities in this area, and in providing a structure that can guide asset managers and end-investors alike.

“There is an estimated $5-7trn1 annual investment need into the themes marked out by the SDGs, and it is clear to us that prices are starting to track that need,” she told investors at a recent AXA IM webinar. “At the same time the SDGs provide the means for verification and measurability of non-financial results. This is utterly crucial for anyone trying to deliver genuine impact.”

For Jonathan Dean, who heads up AXA IM Alts’s ‘traditional’ private market impact investing strategies, the headline SDGs are only half the story. He stresses that the more granular and definitive targets within each goal add heft and detail to the global push to tackle the SDGs – and help identify specific growth paths for portfolio companies.

“The SDGs are more than colourful, attention-grabbing logos, they run deeper and wider in terms of highlighting investability and in terms of delivering genuine financial and impact returns. If you are an investor, in private or listed markets, the SDGs help make impact actionable.”

And so, across private and listed markets, the SDGs offer useful foundations, but any successful impact strategy must also display some key features:

▶ a clear definition of what the strategy seeks to achieve

▶ an assessment of the scale of the problem it aims to address

▶ an assessment of how capital can be deployed to do that

▶ a clear understanding of the route to financial returns alongside impact

▶ a path to measuring and verifying impact over time

For now, asset managers need to make sure these factors work individually for each and every impact strategy and for each and every investment. We do not have the luxury of a common set of standards for measuring and reporting impact criteria. In fact, the sharp growth of the industry has expanded the ways in which impact is defined and communicated.

That is a challenge as well as an opportunity – AXA IM has the scale and means to dive deep into each holding, but we also work towards industry standards that will help lift the impact segment as a whole.

1 UN Secretary General António Guterres. September 2018.

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