Cloud Talk: Investing For Impact And Sustainability
Our latest Cloud Talk on January 22 took the form of an interactive workshop and examined the topic of sustainable investment, why it matters and how to maximise its impact
For the January 22 edition of Cloud Talk, Gen.T dived deep into the topic of sustainable investment. From spotting performance potential to how to build an investment portfolio with real-world positive impact, these questions and more were addressed during an interactive workshop led by Dr James Gifford, who is the head of impact advisory for Credit Suisse.
In his role as head of impact advisory for Credit Suisse, Dr James Gifford works closely with clients and advisors of the bank to mobilise capital into impact investing. His experience also extends into education, where he teaches a joint programme by Harvard Kennedy School and the University of Zurich for high-net-worth individuals, particularly next-generation family business leaders. The founding executive director of the UN Principles for Responsible Investment, which he led until 2013, he has also published numerous articles and book chapters on responsible investment.
Here are some key takeaways from the session.
Defining Sustainable Investing
Sustainable investing directs investment capital to companies that typically seek to tackle social and environmental issues, such as poverty and climate change, while promoting corporate responsibility. There are several sustainable investment approaches, including exclusions, ESG integration, thematic investing and impact investing.
Exclusions tend to be about morals, said Dr Gifford. It sees investors avoiding "unethical" sectors such as tobacco, alcohol and pornography. With ESG, or Environmental, Social and Governance integration, "there's a particular focus on the materiality of sustainability issues", where investors take into account the sustainability performance of a company.
Thematic and impact investing are about "solving problems and investing in companies that have solutions to problems". This could mean investing in an agri-tech, ed-tech or health-tech company that is directly improving the lives of underserved communities.
Dr Gifford adds that while ESG integration focuses on investing in "normal" companies like Microsoft or Unilever, which often tend to be large-cap or highly rated companies from a corporate governance perspective, thematic and impact investing focus on companies that are directly solving problems. "Impact investments are also illiquid in nature, as your money literally goes into the bank account of the company you're investing in and directly funds its growth."
The market for sustainable and impact investing is growing fast
According to figures shared by Dr Gifford, global sustainable investing has grown by more than 100 percent to become a trillion-dollar market between 2014 and 2019. Within that same period, the market for global impact investing specifically grew even faster—by over 1,000 percent—and is said to be valued at about US$715 billion.
At the same time, both sustainable and impact investments have shown good performance as compared to the broader market. "The history of sustainable investments in liquid markets is solid, there's no evidence of underperformance," said Dr Gifford. "Of course, we can never say that sustainable investments will outperform the broader market in the future, but what we can say in confidence is that they have not underperformed in the past. So you can most definitely have a strong portfolio of sustainable investments."
Why haven't we solved all of the world's problems?
As of 2019, more than US$3 trillion reportedly go into sustainable investments every year, which should be more than enough to tackle the US$2.5 trillion financing gap that is said to be standing in the way of us achieving the Sustainable Development Goals in developing countries. So why hasn't this helped us eradicate all the world's problems?
"Not all sustainable investments are impactful," explained Dr Gifford. "If all you're doing is to buy Unilever shares, for instance, this isn't really making a difference to a country's poverty or education levels. You're simply buying shares from somebody else in the stock market; you're simply swapping ownership of the shares in a liquid market. And even if you choose not to invest in 'bad' guys like tobacco companies, it isn't enough to create a direct positive impact on the issues that need to be tackled."
"On the other hand, if you buy shares in a company during its Series B funding round, for example, you will have a more direct positive impact on the issue because your money is going to directly fund the company's growth. In other words, if you want to make an impact [with your investments], you need to go into private markets or private companies, or look for shareholder engagement and activism", which will allow shareholders to exercise their rights as investors to influence corporate decision-making.