Giving Compass’ Take:
· Nina Jais at FSG provides a few helpful points for institutional investors when exploring their unique position within the impact investing market.
· What role do institutional investors play in impact investing? How does it go beyond the typical impact vs. return debate?
Impact investing is here to stay and going mainstream: Recent impact investing conferences like the Impact Summit Europe and the GIIN that feature the who’s who of the financial services industry don’t leave any doubt about that. A good set of investment managers have an experienced head start of several years and are creating differentiated positions for their companies in the market. These savvy investors move beyond the simplistic impact vs. return debate, as Omidyar Network and FSG portray in the Beyond Trade-offs series published on The Economist digital hub, as well as in a set of newly-released podcasts on that same theme.
Here are some key take-aways for institutional investors:
1. Institutional investors—such as banks, insurances, and pension funds, for example—can explore their unique role within the impact investing market. These institutional investors can seek out the market segments where impact goes hand-in-hand with financial return, or even delivers impact alpha, i.e. excess return beyond market benchmarks. In impact investing, there is a broad range of viable impact investment profiles, some of which involve a choice between impact or financial return, and some of which do not. Therefore, fiduciary duty is only a mental hurdle—and not a fact-based hurdle—for involvement in the space.
2. An important learning from the front-runners is to not mute, but actually to lean into the tensions and concerns about impact investing one hears from colleagues and top management. Does it create real impact? Can it create market rate returns? Isn’t it inherently riskier? It is not helpful to hide below-market rate investments within a bigger portfolio and only report on the average outcomes. One of the key Beyond Tradeoffs messages is that investment officers need to understand the full risk-returns-impact continuum available and select different instruments, with transparency about what each of these vehicles can and cannot achieve. Asset class flexibility and a breadth of target impact outcomes have allowed Prudential to ensure a steady and diversified pipeline across their three differently positioned impact portfolios.
Read the full article about impact investing by Nina Jais at FSG.
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