SHAPING THE FUTURE OF IMPACT INVESTING - GROWING GAINS
While the practice of impact investing dates back many years, the term only came into being in 2007. Today, it represents one of the fastest growing investment approaches in the market, and despite its infancy, impact investing is challenging traditional views on social responsibility, investment returns and risk.
At a Lombard Odier Client Seminar in Gstaad, Switzerland, we spoke to Katherine Brown, Practice Lead for Investors Industries at the World Economic Forum (WEF), and Guillaume Bonnel, Fund Manager for Lombard Odier’s Impact Investing team, about the drivers behind this game-changing approach to investments.
"Impact investing is an investment approach as opposed to an asset class in and of itself. As the WEF defines it, it is a strategy that cuts across asset classes to intentionally seek to create both a financial return and a positive social or environmental impact. But what is vital to this approach is that both these types of return (social and financial) should be actively measured. For the latter, this is fairly straightforward to do, but it’s not so easy to measure the social or environmental impact of an investment. While this challenge still exists in the sector, over the past 10 years, a number of players have come into this space to facilitate how the market measures impact, and as a result, great progress is being made." Katherine Brown
"As the sector continues to mature, new benchmarking analysis has shown that impact investing funds have delivered returns that are comparable with those of conventional funds. Green bonds, for example, have the potential to deliver the same type of rewards as any other bond in terms of liquidity, returns, volatility and risk. Meanwhile, a growing body of commentary supports the view that using social and environmental impact analysis to evaluate companies can help to forecast and mitigate more traditional risks." Guillaume Bonnel
"It is speculated that the market potential in the next 10 years is USD 2 trillion. Today, according to the GIIN (Global Impact Investing Network), the sector stands at about USD 60 billion. And if you ask anyone in the industry what is the biggest driver for implementing this approach, they will almost always say: “It's the millennials; the generation born between 1980 and 2000.” However, 80% of the millennials are essentially saying, “Pretty much all I really want is to create a positive impact.” This generation is very clear about the fact that there is no conflict of interest between contributing positively to society and generating a profit. This generation is also pivotal to the family business community. An estimated 17% of the average asset allocation by family offices is in impact investment. Family offices and high net-worth individuals are very much the anchors of this approach because they have the flexibility to make investments that align with their values." Katherine Brown
"There is clear evidence that people who became adults after the year 2000 (millennials) are thinking increasingly differently about the potential of business and entrepreneurialism as a vehicle for social change. However, this cannot merely be attributed to the idealism of youth: the survey compared this group’s responses to what earlier generations said about the same topics when they were the same age. Some of the findings from the global survey involving 8000 people (Mind the Gaps - Deloitte Millennoal Survey 2015) are meaningful not just from an investment point of view but from the perspective the corporate sector’s relationship with society at large." Guillaume Bonnel
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Impact Investing at Lombard Odier : experts on hand
The Lombard Odier Impact Investing team was set up in 2011 to give investors1 broader access to impact investing products, delivering cutting-edge expertise in asset management, economic analysis and social impact. In 1997, we created the Lombard Odier Responsible Investment Model and we have continued to innovate in the sector over what has been a pivotal period for the evolution of ethical and impact investing. Two years ago, we launched the first private fund of funds fully dedicated to development finance. Last year, we created an in-house countries analysis tool, and this year we will launch positive screening and green bonds solutions (Lombard Odier's Impact Investment products are not available in all jurisdictions and/or to all categories of clients).
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