Active is: Investing for impact
As investor interest in impact investing grows, beware “impact washing”
Impact investing is becoming more popular, but investors keen to get involved should look out for traditional investments mislabelled as “impact”.
“Be the change that you wish to see in the world”. Gandhi’s philosophy could act as a guiding principle when investors define their approach to impact investing.
According to the latest figures, this rapidly expanding market is now worth over USD 500 billion, making it one of the fastest growing parts of the investment industry today. As more investors look to allocate capital with the intention of achieving a defined and measurable "impact", the sector looks set to experience continued growth. That’s great news for social and environmental innovators, who stand to benefit from money flowing into new technologies, and it’s great news for responsible businesses that should see their positive business practices in environmental, social and governance (ESG) terms rewarded.
But this rapid rise in demand is also threatened by a key risk – ”impact washing”. “Impact washing” - like its better-known cousin “green washing” - is when an impact fund labels “traditional investments” as “impact investments” in an attempt to benefit from the positive attributes linked to the trend. Ensuring we don’t dilute or distort the definition of what constitutes impact investing before the market has really taken off is a key concern that needs to be actively addressed in order to safeguard sustained growth in investor appetite going forward.
True, impact investments must focus on transparency and accountability of the effects achieved by the investment. This makes an investor's commitment to continuously measure and document the social and environmental effects of investments one of the most important features of impact investing. While investors seem to agree on the process steps required to carry out private impact investments, the quantitative and qualitative measurement itself – and the techniques used – are currently anything but standardised. However, promising initiatives such as the IRIS+1 from the Global Impact Investor Network, are looking to create such standards.
At Allianz Global Investors, we have developed a stringent methodology in line with current best practice that allows us to measure impact. This methodology grew out of our belief that impact investments can deliver significant benefits to institutional investors and that these benefits are most likely to materialise when impact investments pursue a holistic strategy.
For us, impact investments in private markets should be guided by three principles. First, the strategy must aim to have a positive effect in social and/or environmental terms and at the same time generate an attractive financial return. Second, there must be a causal link between the investment and the effect achieved. Finally, the effect must be identifiable and measurable. In addition, regular documentation must be provided to ensure the validity of the effect. Following these guidelines, we believe we can report the positive effects of our investments in a transparent and comprehensible way.
When it comes to impact investing, ‘being the change’ demands that, as fund managers and investors, we can identify and measure the changes we are financing.
This piece originally appeared in Private Debt Investor:
976828 | COMM-344
About the author
Global Head of Investments
Deborah Zurkow is Global Head of Investments at Allianz Global Investors and a member of the Executive Committee. In January 2020, Deborah took on responsibility for leading AllianzGI’s investment platform, which comprises Private Markets, Equities, Fixed Income and Multi-Asset strategies.
Which investment implications can be derived from our 2020 Outlook?
Investing involves risk. The value of an investment and the income from it will fluctuate and investors may not get back the principal invested. Past performance is not indicative of future performance. This is a marketing communication. It is for informational purposes only. This document does not constitute investment advice or a recommendation to buy, sell or hold any security and shall not be deemed an offer to sell or a solicitation of an offer to buy any security. The views and opinions expressed herein, which are subject to change without notice, are those of the issuer or its affiliated companies at the time of publication. Certain data used are derived from various sources believed to be reliable, but the accuracy or completeness of the data is not guaranteed and no liability is assumed for any direct or consequential losses arising from their use. The duplication, publication, extraction or transmission of the contents, irrespective of the form, is not permitted.
This material has not been reviewed by any regulatory authorities. In mainland China, it is for Qualified Domestic Institutional Investors scheme pursuant to applicable rules and regulations and is for information purpose only. This document does not constitute a public offer by virtue of Act Number 26.831 of the Argentine Republic and General Resolution No. 622/2013 of the NSC. This communication's sole purpose is to inform and does not under any circumstance constitute promotion or publicity of Allianz Global Investors products and/or services in Colombia or to Colombian residents pursuant to part 4 of Decree 2555 of 2010. This communication does not in any way aim to directly or indirectly initiate the purchase of a product or the provision of a service offered by Allianz Global Investors. Via reception of his document, each resident in Colombia acknowledges and accepts to have contacted Allianz Global Investors via their own initiative and that the communication under no circumstances does not arise from any promotional or marketing activities carried out by Allianz Global Investors. Colombian residents accept that accessing any type of social network page of Allianz Global Investors is done under their own responsibility and initiative and are aware that they may access specific information on the products and services of Allianz Global Investors. This communication is strictly private and confidential and may not be reproduced. This communication does not constitute a public offer of securities in Colombia pursuant to the public offer regulation set forth in Decree 2555 of 2010. This communication and the information provided herein should not be considered a solicitation or an offer by Allianz Global Investors or its affiliates to provide any financial products in Brazil, Panama, Peru, and Uruguay. In Australia, this material is presented by Allianz Global Investors Asia Pacific Limited (“AllianzGI AP”) and is intended for the use of investment consultants and other institutional/professional investors only, and is not directed to the public or individual retail investors. AllianzGI AP is not licensed to provide financial services to retail clients in Australia. AllianzGI AP is exempt from the requirement to hold an Australian Foreign Financial Service License under the Corporations Act 2001 (Cth) pursuant to ASIC Class Order (CO 03/1103) with respect to the provision of financial services to wholesale clients only. AllianzGI AP is licensed and regulated by Hong Kong Securities and Futures Commission under Hong Kong laws, which differ from Australian laws.
This document is being distributed by the following Allianz Global Investors companies: Allianz Global Investors GmbH, an investment company in Germany, authorized by the German Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin); Allianz Global Investors (Schweiz) AG; in HK, by Allianz Global Investors Asia Pacific Ltd., licensed by the Hong Kong Securities and Futures Commission; in Singapore, by Allianz Global Investors Singapore Ltd., regulated by the Monetary Authority of Singapore [Company Registration No. 199907169Z]; in Japan, by Allianz Global Investors Japan Co., Ltd., registered in Japan as a Financial Instruments Business Operator [Registered No. The Director of Kanto Local Finance Bureau (Financial Instruments Business Operator), No. 424], Member of Japan Investment Advisers Association, the Investment Trust Association, Japan and Type II Financial Instruments Firms Association; in Taiwan, by Allianz Global Investors Taiwan Ltd., licensed by Financial Supervisory Commission in Taiwan; and in Indonesia, by PT. Allianz Global Investors Asset Management Indonesia licensed by Indonesia Financial Services Authority (OJK).