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IPE Conference: Quantitative v qualitative in impact investing

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Being able to convey the social or environmental impacts of investments in numbers is not the be-all and end-all of impact investing, asset owners told IPE’s annual conference last week.

Faith Ward, chief responsible investment officer at Brunel Pension Partnership, said defining key performance indicators (KPIs) for impacts was a more straightforward process at the level of individual strategies than at an aggregate portfolio level.

“Our clients are asking us to tell the story about the whole fund and I think ideally they’d love us to distil it into a few figures, but in reality that is not going to tell the story or bring it to life,” she said.

It was more important to come to a qualitative judgement about whether an investment was having the desired impact, Ward suggested.

“Don’t let the fact that you can’t measure it or come up with KPIs straight away stop you from going down this path,” she said.

The Ireland Strategic Investment Fund (ISIF) had a similar view, according to Eugene O’Callaghan, director of the €8.9bn sovereign development fund.

“We try to do the right thing and then worry about how best to relay that and report that after we’ve done the right thing,” he said.

The fund reports twice a year on its economic impact. According to O’Callaghan, the reporting had initially been “very factual, quant-based,” but recently ISIF had tried to develop more of a narrative, with “hard work numbers” appearing in the second half and appendices of the report. 

“So there is transparency, but ultimately the view on whether we’re adding value or not will come from whether people agree and accept the narrative we’re articulating,” said O’Callaghan.

FRR ready to make its move

Olivier Rousseau, Marie Dzanis

Credit: Patrick Frost

FRR’s Olivier Rousseau collects the Climate Related Risk Management award from Marie Dzanis, CEO of Northern Trust Global Investments

In France, the €36.4bn Fonds de réserve pour les retraites (FRR) wanted to make a bigger commitment to impact-conscious investing , and in Dublin Olivier Rousseau, the sovereign fund’s executive director, told delegates it would be launching a request for proposals in the second quarter of 2019.

The lead-up to this had been “more complicated” than the fund had anticipated, he said, because it was “absolutely vital” that it knew what it wanted and asked “the right questions”.

“All the exchanges we’ve had with many potential asset managers have put us in a situation where we understand it’s not straightforward,” said Rousseau. “We are thinking of doing listed developed markets equities, but there are very different solutions and approaches and ways of measuring it.”

However, investors had to be pragmatic and FRR had determined it would have “reasonable ways of measuring what can be achieved”.

Rousseau said the meaning of responsible investment had evolved over time, meaning it was now possible to be more ambitious, because “the type of thing you can do gets measured better” and there was a real choice of investment solutions being offered by asset managers.

A good Swedish emerging-market story 

Sweden’s Alecta has had a positive experience with impact investing so far, according to Peter Lööw, head of responsible investment at the SEK874bn (€84bn) occupational pension provider.

Alecta moved into this area following “a lot of attention” from its stakeholders – including clients and the media – as well as internal pressure.

One of Alecta’s two main impact investing “pockets” is a $200m (€176m) commitment to an emerging market loans fund run by NN Investment Partners in collaboration with the investment management arm of FMO, the Dutch development bank.

The fund invests in loans to financial institutions, renewable energy projects and agribusiness companies in emerging and frontier markets.

Lööw said the commitment followed a long but fruitful due diligence process and that the pension provider felt it was getting “true impact”.

“There are lots of jobs being created, emissions being avoided and so forth,” he said. “We will continue looking at the fund because it will live on for 15 years.”

The experience with the fund had taught Alecta that it could reach its required rate of return at the same time as pursuing non-financial impacts, according to Lööw.

“The first question you asked was ‘is there a trade-off?’ and perhaps we had the idea that there was a trade-off, but we realised that no, there isn’t,” he told Sony Kapoor, managing director at think tank Re-Define and the panel moderator.

The due diligence process had been a “very good journey” for Alecta, added Lööw.

“It raised the interest regarding impact internally, so this is a very good story-telling exercise, both for ourselves and our clients,” he said.

Sony Kapoor, Olivier Rousseau, Eugene O'Callaghan, Faith Ward, Peter Lööw

Credit: Patrick Frost

L-R: Sony Kapoor, Re-Define; Olivier Rousseau, FRR; Eugene O’Callaghan, ISIF; Faith Ward, Brunel; Peter Lööw, Alecta

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  • Sony Kapoor, Olivier Rousseau, Eugene O'Callaghan, Faith Ward, Peter Loow

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