Insights from “All about Impact Investing” conference on 08, November 2022
The fully packed conference ended to a presentation: Finnish Impact Survey results: The status and future of Impact Investing among Finnish institutional investors.
The first Impact Investing Survey by House of Reach was conducted in Finland during September and October 2022. It was developed together with European Investment Fund (EIF) which has a strong research focus on Impact Investing. The survey is part of the EIF All about Impact Seminar given on November 8 in Helsinki.
The survey was well received with 50+ key institutional investors taking part, either through personal interviews or online. Investors included pension funds, insurance companies, charitable institutions and other main institutions making the universe of the survey representative of all top investors in Finland.
What are the findings of the Finnish Impact Survey?
The current focus of Impact investing is on Environment and there clearly on Climate issues. The other environmental issues: water, biodiversity and circular economy have a reasonable interest but on a slightly lower level of importance.
What about Social Impact investing? We found a strong interest in Health, in fact health being second only to Climate as the main focus to investors. But the other ‘S’ areas Education and Gender Diversity have generated a rather low level of interest.
It is however interesting to note that most investors had chosen not only one factor of impact but several among E and S.
How is the Impact trend developing within 1-2 years?
While Climate is getting even more weight in Impact investing (70 % of investors saying it is very important in 1-2 years), all the other Environmental areas are growing as well thus broadening and strengthening the overall impact. The importance of Biodiversity is doubling, Circular economy growing 3—fold in importance and Water growing 50%.
Among “S” the growth is positive but milder than with “E”. But when you look closely, you can note that the interest in Gender Diversity is to more than double in 1-2 years, with 16 % of investors stating that it will be very important, compared to only 7 % in 2022. Biggest interest is, however, in Health impact.
There is a rather broad range of investment instruments used in Impact, with most investors having several avenues to do impact investing. However, Equity is the most popular route. Thematic mutual funds are most popular with 68 % of investors investing in them, while private equity attracts almost as much. Almost half of the investors are planning to invest even more on Impact via equity. Over third of the investors are investing into Venture Capital to some extent, and the interest is growing.
Credit instruments are found less useful so far but are showing a slight growth potential.
A single popular means of investing into Impact is Infrastructure, with 21 % of investors using it as the main vehicle. A third of investors are planning to invest more in 1-2 years in infrastructure.
Geographical focus of Impact investing differed. Biggest interest was in Global markets (29% investing mainly there), Finland and Europe having equal interest (21 %). For the next 1-2 years the main growth seems to be in Global approach.
“What is measured and what would we want to measure?”
“Comparability and understanding what is really measured and what is our real impact.”
The challenge in Impact investing lies in the availability of data on impact and the lack of standardization of it. The data on climate has reached a more comfortable level of quality, but the more versatile aspects of environmental impact such as biodiversity faces challenges. And with “S”, social impact, the investors are facing limited availability of data.
Most investors reported that they are using mainly qualitative information to assess the impact (40 % of investors) while only 30 % said that they rely mainly on standard frameworks. Most said that the asset managers should take an even more active role in providing the framework to evaluate the investment.
The challenge of measuring consists of the lack of reliable data on impact and performance, with 60 % of investors evaluating it as the main challenge. Half of the investors indicated that they lacked internal resources to make analysis and use of data, hence expecting asset managers to provide the necessary data and analysis. Interestingly, the cost of data was not seen as an issue.
What would make Impact investing even more attractive to investors?
Investor quotes: “More clarity needed! We should get everything from data, not from our feelings. But who measures and who does audit of it?”
“Investment arguments should be stronger in Impact cases. To make an investment decision, it is not enough to present just impact angle. I would think that there are also such impact products that combine impact with a competitive risk return.”
The DATA is again the key issue. Investment decisions must be made based on data, ie data on impact as well as financial performance. Without sound and standardized data, investors cannot invest professionally as they cannot track performance.
The top obstacles we found are:
1. Reporting on KPIs (key performance indicators) and other relevant measures (85 % said this as an obstacle to invest more) and
2. Better look-through visibility into impact KPIs at portfolio level (78 %)
3. Carried interest to be linked to tangible/measurable impact KPIs at GP level (61 %).
Finnish institutional investors are active in sustainable investing, taking a strong interest in Impact investing largely through equity investing, both private and mutual funds. The focus is widening from Climate to other environmental issues and, albeit less so, into Social Impact. The main issue, the main obstacle to make Impact investing reach its potential, is the data and reporting - both its quality and standardization, without which the professional investing into Impact cannot reach next level.
Finnish Impact Investing Survey 2022/ Dr Annukka Paloheimo Segersven/ House of Reach.
http://www.eif.org/news_centre/research/index.htm (EIF Research & Market Analysis)