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Impact investing and the new era of ethical investments.

What we invest in today will significantly impact and influence the world we will live in tomorrow.

In this sense, an increasing number of people is rethinking at their money allocation, investing in products and services that prove to have a social value or a positive environmental impact.

The term ‘impact investing’ has been coined in Italy in 2007 by the Rockefeller Foundation during a meeting with the most influential leaders of the market. Its meaning is strictly related to those investments that are intended to generate both a financial return and a social and/or environmental return. For this reason impact investing is characterised by having a dual purpose.

Despite today people has shown an increasing awareness in the field of sustainable investments, about ten years ago the picture was slightly different. Indeed, as reported in the Post, in 2008 Liesel Pritzker, the heir of a wealthy American family, didn’t manage to get any relevant answer when she asked her financial advisors on the opportunities available on the market as for positive-impact investments. For this reason, in 2012 she decided to build her own fund, Blue Haven Initiative, which is uniquely dedicated to impact investing.

The awareness cited in the previous paragraph is clearly visible if we look at the values endorsed by the contemporary society and that the most influential companies are trying to promote. For example, in order to reduce the use of plastic, the 2019 London Marathon organisers have decided to provide athletes edible water capsules instead of the usual plastic bottles. These pods are totally biodegradable in just 6 weeks.

On this topic, recently the Harvard Business Review has interviewed a group of 70 senior executives, members of the most influential asset management companies such as BlackRock, Vanguard, e State Street. From their conversations, it emerged clearly how sustainability represents a key issue of their activities and it is totally integrated in their investment choices.

The European SRI Study 2018 published by Eurosif highlights the growing path of this market and the main areas of investments at a European level:

 

In particular, it emphasises the fluctuation of ethical investments by country between 2015 and 2017:

As for Italy, it is possible to notice a significant positive shift that analysts address to the growing interests and awareness on environmental and social issues.

It is crucial to remember that in July 2018 IVASS, in line with the EU Directive Solvency II, has published the regulation n°38/2018 that forces all boards of directors to identify, value and manage social and environmental risks. The adoption of this regulation is crucial since it constrains businesses to encourage awareness on the ESG themes (Environmental, Social, Governance).

The pie chart presented above reveals that Renewable Energy and Energy efficiency represent the most important areas of investments. Empower, our private equity instrument, properly fits this context by combining financial benefits and social/environmental advantages.

To answer the question “Are ‘ethical’ investments convenient?”, it is quite likely that in a near future, companies that do not show any attention for all the sustainability-related issues will be severely penalised in the medium-long term. For this reason, despite in the past there was no need to perform according to sustainability principles, nowadays companies will have to evaluate their financial results in the light of these new criteria.

 

References:

Eurosif (2019). European SRI Study 2018.