Investors are increasingly opting to go beyond ESG considerations to support positive change through impact investing. Impact investors connect the pursuit of risk-adjusted returns with the delivery of positive real-world outcomes, often connected to the UN's Sustainable Development Goals (SDGs).
This paper highlights two real world client case studies in illiquid private equity and liquid global listed equity, and presents ways of getting onto the impact pathway.
Impact investing offers a chance to make a real difference to SDGs within a $12 trillion USD global growth opportunity investment universe1.
Applying an impact lens can help identify opportunities overlooked by a sustainability-themed approach. Impact investing targets underserved areas of the global economy, such as meeting the needs of the “bottom billion” or critical global problems such as climate change. Each SDG provides a range of impact investment targets; for example, climate action could motivate allocations to renewable energy or green buildings.
Investors typically approach an impact investment allocation with three key issues in mind: 1) intention and themes to target; 2) portfolio allocation and implementation options; 3) how outcomes will be measured and reported to different stakeholders. There are many ways that themes or topics can be identified and prioritized by investors. We have identified those that we believe are key from an impact investment perspective, in both environmental and social categories.
For some investors, a diverse range of themes will be their preference, while others will only want to target specific themes important to them. Not all impact themes lend themselves to simple categorization — water is a good example, as it could easily sit under either an environmental or social heading. While we are making the investment case for these allocations, many investors and their stakeholders will also place an intrinsic moral value on contributing positively to society and the environment.
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