The 2022 GIIN Forum held in The Hague, Netherlands, was an impact investing celebration drawing 1,500 attendees from all corners of the globe. For many, the event was the first major gathering in more than two years, since the pandemic began.
Despite the obvious concerns participants shared over the state of the world – including a looming recession, war in Ukraine, and natural disasters, to name just a few – the mood was positive, and for good reasons: the astronomical interest in impact investing leads vast amounts of capital to enter the sector, with everyone, from asset owners to asset managers and fund managers, growing in size and ambitions.
Growth comes with a price.
A number of asset managers and fund managers lamented the need to deploy more capital and becoming too big to invest in small, innovative impact solutions. Several initiatives are being led by aggregators and families to syndicate smaller emerging fund managers to access larger pools of capital and to provide catalytic capital for these managers to grow in scale.
The need to increase the flow of capital towards impact has somewhat tampered in comparison to previous events. While participants feel it continues to be important to grow impact investing to address pressing global social issues, the conversations also turned to not only moving more capital toward sustainability, but also to identifying existing gaps. For example, climate investing benefits from large allocations and most of the attention. Nevertheless, other sustainability areas such as biodiversity and regeneration need more attention than what they have received to date.
Regeneration may be the buzz word of the 2022 GIIN Forum. Agriculture is responsible for 25% of CO2 emissions. Regenerating lands can reduce those, and turn healthy solid into a carbon sink. Regeneration also brings benefits to family farmer livelihoods, and healthy, nutritious food to the table.
Impact management continues to evolve. The chatter among many attendees included the impending arrival of the EU SFDR Article 10 and its burdensome reporting requirements. It is hard to conceive such a standard ever coming to the U.S. In fact, U.S. investors are relying on their fund managers to understand SFDR 10.
Panelists questioned the use of financial returns as the appropriate benchmarks to make investment decisions.
Is an investment with an 8% return necessarily better than one with a 5% return, if the latter has more positive externalities? How do impact investors price and design a metric encapsulating social and environmental returns?
Some asset owners suggest giving up altogether the use of market-rate, risk-adjusted benchmarks for making decisions about their impact portfolios. This would give asset managers more flexibility to build portfolios with higher impact, with financial returns dedicated by what asset owners need to operate.
Given the increase in natural disasters and warming temperatures, it is no surprise that for many attendees climate change investing is a priority. Investors are using science-based targets such as net-zero emissions to build portfolios that can meet intermediate (2030) and long-term (2050) climate change targets. Divesting from fossils is now well under-way, and not one investor seemed to question the need to do that starting now. For asset managers, the war in Ukraine is not changing their divestment strategies: fossil fuels cannot be part of any sustainable investment strategy, and taking a long-term view is the only way to reach climate targets.
The science is less clear for biodiversity. Our sector has not yet developed the targets for maintaining long-term biodiversity goals. This leads to investors not yet having coherent strategies. For example, some investors have divested from palm oil, even though WWF, a conservation organization, has advised against it.
A theme that resonated was that impact investors do not need to always invest in the new “shining object.” Innovations are necessary, and at the same time, trusted solutions need to be scaled. Both problem solvers and solutions scalers need attention for us to address social issues at all levels.
The optimism about where the sector is heading, in terms of growth and possibilities, mixed with the angst about the state of the world, made 2022 GIIN Forum a fascinating space where we could pat ourselves on the back while staying aware about not becoming complacent.