Utilizing Investment for Impact: Part 2

By Loren Francis on October 1, 2019

It is no surprise that companies and their investors are increasingly recognizing the importance of sustainability. Hardly a day goes by without discussion in the mainstream and the financial media about the impact of sustainability issues. Today many companies whose shares trade on public exchanges acknowledge their need to provide better disclosure of material Environmental, Social and Governance (ESG) factors to allow investors to make more informed decisions. Furthermore, applying an ESG lens is increasingly becoming recognized as a core fiduciary duty amongst global investors. 

A recent report from the Millani Group suggests there is a growing alignment to developing external and standardized ESG reporting frameworks. While the goal of developing standardized reporting is shared, the approach varies by firm. Some companies have adopted either the Global Reporting Initiative or the Sustainability Accounting Standards Board (SASB) frameworks. On the issue of climate change specifically, some companies are responding to the recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD) by sharing how they are managing risks and opportunities related to climate change. As we discussed in our last blog on this topic, the Sustainable Development Goals (SDGs) are also becoming more commonly used as a framework. In fact, companies are beginning to report, through their investor relations communications, how they align strategy, targets or specific goals to making progress on one or more SDGs.

Improved disclosure is helpful for the growing pool of investors who want to measure the positive social and environmental impact of  their investments along with returns. Aligning your investments and values with companies and solutions that address the SDGs is about more than just doing the right thing for society, it is also a smart investing strategy. Decades of financial reporting have provided a high degree of understanding, consistency and comparability of financial reporting. But as evidenced by the various approaches described above, the same cannot be said for reporting and disclosure of ESG or non-financial metrics. 

Following the release of our last blog of July 18, 2019, “Utilizing Investment for Impact” HighView, in partnership with Rally Assets, hosted client focus groups on Impact Investing over the summer. We had robust conversations around investment strategies and evaluating investments from an impact lens. These conversations confirmed the importance of the SDG’s which, when thinking about investing for impact, help investors:

  • Identify Opportunities: Achieving the SDGs could produce over $12trn in new market opportunities in areas such as food, agriculture, cities, energy, materials, health and well-being, and create over 380 million jobs. 
  • Evaluate Impact: Corporate revenues and operations can be assessed, measured, and mapped based on which SDGs they impact favourably or adversely
  • Create Action: Through direct engagement and allocation of capital, investors can collectively push companies for more positive impact and improvement towards the commonly understood SDGs
  • Avoid Risk: Companies that fail to address the SDGs may ultimately face higher risks of policy or regulatory changes that could result in an impairment of their business or an erosion of competitive position. 

Our focus groups and ongoing discussions confirmed our belief that clients are keenly interested in finding a way to translate their impact intentions into investment decisions that navigate the complex and changing investing universe.  Furthermore, the recent 2019 UBS Global Family Office Report suggests that Family Offices around the world are increasing their allocations to sustainable and impact investing with impact investments almost doubling over 2018 estimates. That is why we have embarked on a search for an impact investment fund that has a long-term focus using a diversified multi-asset class approach to selecting public and private investments. Rally Assets, for example, has identified five investable impact themes – Sustainably Meeting Basic Needs, Empowering the Structurally Excluded, Addressing Climate Change, Sustainable Use of Natural Capital, and Social Infrastructure that align with the 17 SDG’s. Rally will share their approach for identifying and investing in impact opportunities, both public and private, at our upcoming October 15th and 16th events in Oakville and Toronto. Please join us to learn more about the Rally Total Impact Fund.

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