Ben Constable-Maxwell
Head of Impact Investing, M&G
Impact investing is a way to flow capital towards underserved environmental and social issues, says Ben Constable-Maxwell, Head of Impact Investing, M&G.
How is impact investing different from other types of sustainable and responsible investing?
Sustainable and responsible investors primarily seek good financial returns, but they also avoid ‘bad actors’ or invest in companies that successfully manage their social and environmental responsibilities. Impact investors, meanwhile, take a different approach by intentionally targeting specific environmental and social challenges and invest in companies or solutions that are trying to actively drive positive change in those areas.
These types of investors want solid financial returns too; but crucially, they also want their investment to do good, not just avoid harm. Evaluating and measuring the positive impacts is a necessary part of the process — and helps to avoid ‘impact washing.’ Importantly, impact investing has a role to play in orienting capital towards issues and communities that are currently being underserved by traditional finance.
What are the biggest challenges facing sustainable and impact investors?
The Global Impact Investing Network (GIIN) reports that the worldwide impact investing market is now worth $1.16 trillion. That’s encouraging but, clearly, growing that market further could be a challenge in the short-term in an environment where certain high-emitting sectors are on a resurgent path.
There’s also the challenge of greenwashing and impact washing: i.e., investors must make sure that the businesses they invest in aren’t making false, misleading or overstated claims about their environmental, social and governance (ESG) strategies or the sustainable impacts of their products or services.
UK and European regulation in this area is welcome because it pushes businesses to be transparent about their operations and solutions. However, the right balance needs to be struck. If regulators set excessively narrow parameters about what is a sustainable or impact investment and what isn’t, it could put off potential investors and slow the market’s momentum.
The world needs to reorient towards the
SDGs and use them as a ‘north star.’
Is the world on track to meet the SDGs by the target date of 2030 and what can investors do to support the UN’s agenda?
In 2015, the UN unveiled 17 Sustainable Development Goals (SDGs) for a better and more sustainable future for all. Analyses suggest that the world is not on track to meet those 17 SDGs.
In 2022, we highlighted that only two SDGs have progressed (SDG 3: good health and wellbeing, and SDG 9: industry, innovation and infrastructure); and two others (SDG 7: affordable and clean energy, and SDG 10: reduced inequalities) have gone backwards since the Covid-19 pandemic.
To be fair, there’s a lot of investment going into affordable and clean energy at the moment; but much more is needed. To properly tackle the challenges we face to ensure a sustainable and equitable future, the world needs to reorient towards the SDGs and use them as a ‘north star.’
As for investors, they have a huge societal responsibility — but also a huge investment opportunity — to invest their capital in companies and solutions that will solve the world’s problems.
What are the most interesting opportunities ahead for impact-oriented investors?
The circular economy is an area that can support solutions to some of the world’s most intractable problems. That is, investing in innovative companies that can slash the use of virgin raw materials by helping to extend the life of a product for as long as possible; or that extract products of value from waste streams before returning them as a recycled input into the industrial process.
In sustainable investing, there is — naturally — a lot of focus on the climate crisis. But nature is in crisis too, and some investors are moving towards addressing this critical issue. An impact-oriented approach could include financing sustainable forestry and natural flood defences or investing in agri-tech to promote more resilient and efficient agricultural practices.
All of the above can help the world achieve its sustainability goals while aiming at generating a return for investors.