The strengths and weaknesses of both types of investment are widely known:
- Impact investing, unlike private investments, has a clear impact mission: its intention is visible, measurable and verifiable. There remains the challenge of its limited accessibility to investors and therefore its potential size and the extent of its impact.
- Sustainable and responsible investments focus on ESG aspects from a process and product perspective, including the company’s social license to operate and the impact of its products on ESG themes. While the industry still faces the challenge of clarifying its intentionality and particularly its metrics, the impact is real and its magnitude and scope are increasing.
In financial terms, sustainable and responsible investments give impact investing the depth it currently lacks and provide an essential lever for the volume of the financing required.
In terms of impact, impact investing has pushed the limits of sustainable and responsible investment by forcing it not only to reject the least exemplary/virtuous market players but to demonstrate how they make a positive contribution to society as a whole.
Looking at the long road travelled by our sustainable expertise to date, this double lesson can be seen throughout the last seventeen years.
The first strategies we launched at Degroof Petercam reflected pure best-in-class approaches that left little room for transition, effort or commitment. Today it is no longer enough not to invest in the less virtuous companies in a sector. It requires commitment, impact and action. Without falling into the trap of excessive reporting, transparency requires relevant and reliable indicators and information. Going beyond the absolute carbon footprint figure, it is essential that we understand what contributes to the carbon footprint and how that will evolve in the future.
More requirements and more analysis
It also results in a more critical attitude towards information received. The impact request leads to questions about the company’s primary purpose, its contribution to a more sustainable world and its evolution over time. Sustainable themes are increasingly reflected in portfolios, constituting the major differentiation with ESG integration funds, which generally integrate the risk related to ESG issues but do not take systematic account (concept of intentionality!) of the response to sustainability issues. This requires an increasingly pointed and focused analysis of the real issues in the sector or sub-sector. Here too there is an “impact” for asset managers and other financial players: we have to engage with ESG rating agencies to ensure that both sides understand the real issues and the scores or ratings that reflect this aspect of combined risk and opportunity, instead of the company’s level of reporting.