This week at the Impact Investor Summit: North America, limited partners, fund managers and influencers from across the impact ecosystem convened in New York to discuss the state of the industry. Here are five takeaways from the event.
Not all investors are keen to identify with the ‘impact’ label. In part, this is due to the US political climate. On one panel, discussion turned to the growing number of “impact whisperers”, as managers avoid shouting about their strategies in a bid to avoid controversy. Whatever happens in the political sphere, there is a feeling that clinging to particular labels can get in the way of real dialogue between LP and manager about their sustainability requirements. As one panelist noted, many US investors have pursued impact strategies for years, without ever needing to use the term.
Planet and people collide
Climate and social issues are converging. Investors declared interest in crossover areas like sustainable food, which has potential for both health and climate impact, and the decongestion of cities, which has a similar dual impact. Investors are also paying attention to the social outcomes of climate change mitigation efforts: for example, the thousands of industrial jobs created (in both red and blue states) by projects fuelled by the Inflation Reduction Act and the concomitant demand this creates for skilled labour.
Breaking the PE mold
Investors are looking for impact opportunities outside the traditional private equity fund structure. Some of this is about other asset classes to meet impact interests and financial goals: many LPs at the conference emphasised the enormous need for debt capital for businesses to decarbonise; infrastructure and senior debt strategies can offer lower-risk opportunities for institutional clients. But investors are also starting to question the structure of private equity funds. One highlighted the incongruity of multi-decade decarbonisation efforts and 3-5-year holding periods. Another asked whether the spirit of impact is consistent with the enormous personal wealth that GPs can amass through equity and carried interest.
Inequality is on the agenda
Inequality will become a crunch issue for private markets investors. Delegates heard how social equity – and the need to tackle rising income inequality – poses as much of an investment risk (and opportunity) to portfolios as do climate change and nature degradation. Just as the economy is embedded in and reliant upon nature, it is also reliant at a systemic level on an equitable society. Reference was made to the Task Force on Inequality-related Financial Disclosures (TIFD), which seeks to push forward inequality-related risk management. Delegates also heard from managers with strategies that distribute wealth – either through equity interests or cash distributions – beyond the GP and senior executives to wider groups of stakeholders.
Natural capital ‘is the next climate’
The protection and enhancement of nature is spawning both reporting imperatives to manage risk – in the form of the Taskforce on Nature-related Financial Disclosures (TNFD) – and investment strategies to capture the emerging opportunity. Investment strategies seek both financial returns and carbon credits from natural assets. A question – posed by one audience member – was how to win the “hearts and minds” of investors (in this case a US investor) who might consider this to be “peripheral and non-material”. Among several persuasive answers from panellists, the simplest was to consider the trajectory of climate as an investment consideration. Nature will have its own ‘energy transition’ moment and investors can either get in while the market is still nascent or potentially miss out.
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