As an investor, does your strategy support your mission and values? How do you evaluate and select investing opportunities which ensure your impact supports profit? Which is the most suitable framework for evaluating impact opportunities you should use?
Recent years have seen the growth of responsible investing, which seeks to mobilise capital into investments that target measurable, positive social or environmental impact alongside financial returns. Large asset managers such as BlackRock are embracing impact investing, and it is gaining increasing interest from institutional investors. According to a 2020 survey from the Global Impact Investing Network, 72% of nearly 300 investors reported that they planned to either maintain or increase the volume of capital dedicated to investing responsibly, despite COVID-19.
Alongside the increased interest in responsible investing, new tools are being developed to provide insights, but challenges persist.
Investor Insights
An investor and Client of EBS Advisory is on an upward trajectory in gaining returns on the back of an effective long-term impact strategy. What are the key ingredients to their success? How has this investor aligned their impact goals for profitability in the many sectors in which it invests? Strategy, Time, and Impact according EBS Advisory.
STRATEGY To create real impact, investors need a deliberate, long-term strategy. This strategy should be driven by the investor’s goals of undertaking social and/or environmental impacts, while aiming for an appropriate level of financial return. “Impact is effective only if a manager has a strategy for investing responsibly. This needs to be based on a sound, quantifiable, evidence-based theory of change that is monitored and amended over time”, says Dr Raylene Watson, EBS’s Chief Operating Officer and Senior Technical Advisor for the Client.
TIME “Impact, and particularly social impact, takes time to create sustained value for people. Similarly, but with even more of a delay, any return on investment for the company creating impact takes time to translate into bottom line improvement,” says Watson.
EFFORT “This means that one needs to take a long-term approach (in the context of a 7-to-10-year private equity timeline) to value creation. Measuring social change is a longitudinal process that needs to look at change year on year. This means monitoring and evaluation programmes also need to be designed for a long-term approach,” adds Watson.
“Effective impact reporting takes time, practice and engagement with key stakeholders up and down stream. This means taking the time to engage, get the basics in place, get the data flowing and then growing into material impact reporting.”
THE IMPACT JOURNEY
In 2021, the Client appointed EBS as trusted ESG advisors to assist them on their impact journey. This retainer arrangement leads on from a long-standing relationship in which EBS compiled several Social and Environmental Due Diligence assessments for their group subsidiary.
Key tasks completed to support the Client’s impact strategy include:
- undertaking a gap analysis to determine how to leverage impact across the group subsidiaries,
- developing policies and management systems,
- assisting in developing a theory of change,
- identifying metrics to report on the impacts the Client aims to address,
- building internal capacity through mentoring and training of internal teams,
- compiling an annual Impact Report.
Responsible investing is bringing creative and diverse opportunities to the market, and real impact and financial returns can be created within an established strategy that is continuously monitored and fine-tuned for best performance.
“What is critical is that impact and business strategy are aligned and mutually supportive of each other,” says Watson. “It is only when impact is core to a business that a true dual mandate can be achieved.”
About EBS Advisory:
Operating on a global scale, EBS Advisory is the leading environmental, social and governance (ESG) advisor to financial institutions and PE managers. With over 70 private equity fund managers, pension funds, asset managers, banks, and impact investors as clients since 1999, we have executed projects in 62 countries, across 4 continents. With offices in Johannesburg, Cape Town, Nairobi, Lagos, Accra, Netherlands, Shanghai, and London, we assist clients in integrating ESG into investment decision making, communication, monitoring, management and exit processes. This is specifically aimed at enhancing shared value through improved benefit to society.
For more information, visit our website: https://ebsadvisory.com/
