Impact Investing – A new asset class?

So there’s a growing conversation here in Canada about the Impact Investing market and recently Advisor.ca published an article that I sense helps deal with some of the misconceptions of what this growing field is really about.

In the article, they highlight through an interview with Geoffrey Moore, Co-founder and CEO of TBC Capital Inc., that impact investesting operates on the basic premise of solving social and environmental issues while generating financial profit.  In a similar vein to ESG integration, it requires the management of social and enviromental performance along with financial risks and returns.

Moore hightlights however that “it takes a  more proactive approach than traditional socially responsible investment and is drivn by a growing realization that governments and community organizations simply cannot, on their own, address the major environmental and social challenges of our time”.

The article goes on to quote a recent JP Morgan and Rockefeller Foundation paper “Impact Investing – An Emerging Asset Class” by saying “impact investing is indeed rapidly growing; the early days of an industry building up around it is taking place and according to JP Morgan’s definition is in the in the process of establishing all of the characteristics of an emerging asset class.”

Interesting that here in Canada, the Canadian Task Force on Social Finance has recently made a recommendation that a 10% minimum allocation of mission-related investments be made by all Canadian foundations over the next decade.  Moore believes “this would create demand for several billion dollars worth of impact investing and will provide a case study into how asset allocation models evolve over the coming years”.

But is this for everyone?  Obviously the first rule of investments is “Know your client” and Moore underlines “it is always about the client:  advisors and consultants know their clients.  There is a spectrum of impact investment solutions addressing various risk appetites depending on the focus on financial returns versus desired social impacts.”

Sounds like we’ll being hearing more about this sector in the coming years!

To learn more, here are the links to the article, the JP Morgan/Rockefeller paper, the Task Force paper and a link to TBC’s website.

http://www.advisor.ca/investments/alternative-investments/impact-investi ng-profit-from-a-better-world-12487

http://www.jpmorgan.com/pages/jpmorgan/investbk/research/impactinvestments

http://socialfinance.ca/taskforce/report

http://tbccapital.com/

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One Response to Impact Investing – A new asset class?

  1. JC Amado says:

    Thanks Mila for picking this issue up.

    The IFC has recently published a report ‘Climate Change Scenarios: Implications for Strategic Asset Allocation’ which touches on the issue of impact investing. One of the key findings is rather ‘counter-intuitive’: increased allocation to climate sensitive assets where higher returns are expected to arise could help to manage climate change risks. As such, climate change adaptation investments that realise the opportunities of a changing climate, while building resilience against future impacts, could be a robust ‘forward-looking’ asset allocation strategy. Acclimatise has been advising clients on climate-related investment opportunities. The most edifying example is our work with the power sector for governments, lenders and institutional investors.

    However, the study neglects to consider the physical risks of changing climatic conditions for SAA, arguing that climate change uncertainty makes it difficult to predict impacts and that models only project changes outside of the envelope of natural climatic variability after 2030. Yet, recent climate-related losses in Russia, Australia and Pakistan, for example, and observations of more extreme weather are evidence that investments are already affected by climatic changes. Going forward a closer look at this would be welcome. The readers interested in understanding more about the materiality of climate risks to investment decisions will find the report ‘Climate Risk and Financial Institutions’ which Mila reviewed illuminating.

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