The financial community wants – and must – play a key role in issues such as the fight against climate change, hope for more inclusive growth, access to affordable housing and improved energy efficiency. By anchoring its strategy in these values, Addenda Capital is positioned among the investment management companies that have chosen the path of impact investing. A way for the leader in sustainable investing to act as a vehicle for positive change.
The challenges facing our society are many. Investors can, however, choose their investments according to an approach based on the hope of a promising future. Addenda Capital has developed real expertise in this area, identifying investment opportunities likely to generate positive and measurable social and environmental benefits, while providing an attractive return. Overview of an approach that is gaining ground.
What is Impact Investing? It is an investment approach that starts with an intention: to generate positive – and above all measurable – social and environmental benefits while providing attractive returns. In other words, this approach, which generates enthusiasm and which has experienced strong growth in recent years, consists of wanting to provoke change while verifying that the initial objective, namely the desire to have a positive impact real, will be achieved. Capital may be invested in companies, funds or organizations, including fixed income investments and securities of private companies. Active players in this niche include managers like Addenda Capital, insurance companies, pension plans, foundations, development finance companies and individuals.
How can this strategy respond to the challenges of our time? In the eyes of the Global Impact Investing Network (GIIN), a not-for-profit organization that acts as the global voice of the sector, impact investing can help our society meet challenges in sustainable agriculture, energy renewable energy, microfinance and access to essential services, etc. Addenda Capital’s teams have identified four major themes, which represent opportunities for impact investing in Canada: adaptation to climate change and mitigation of its effects (renewable energy, transportation, energy efficiency); health and well-being (hospital establishments, non-profit housing for the elderly); education (university sector, school boards); and, finally, community development (credit unions, development finance, affordable housing).
A range greater than you imagineAccording to the annual report published by the Global Impact Investing Network, the global impact investing market reached US$715 billion in 2020. To illustrate how far this sustainable approach has progressed in a short time, the organization said the number of companies significantly involved in impact investing responding to its survey has grown from 24 in 2010 to no less than 300 in 2020. These companies, which are among the world leaders in the field, manage collectively US$404 billion in impact investments.
In the country, according to a survey produced in 2020 by the Responsible Investment Association (RIA) of Canada collecting data from 104 managers and asset owners, the niche is valued at $20.3 billion. Just two years earlier, impact investing in the country was valued at $14.8 billion, already representing strong growth from $9.2 billion in 2015 and $3.8 billion. 2012 dollars. Globally, Canada accounts for approximately 3% of the impact investing market.
“The impact investing industry is growing at a faster rate than we expected when we launched this strategy,” said Diane Young, Senior Portfolio Manager, Fixed Income and Co-Head, Corporate Bonds at Addenda. Capital. Companies have taken on environmental and social issues more quickly than one would have thought. »
Interest in the impact approach already seems to be there for the future. For the first time, respondents to the 2020 AIR survey identified investor demand for environmental, social and governance (ESG) factors and impact strategy as key drivers of responsible investing for companies. next two years.
How to measure the impact of an investment? Investors are increasingly turning to standards and reference frameworks that are gradually taking hold on a global scale. While some use in-house developed methods, 73% of respondents to the Global Impact Investing Network survey in 2020 reported using the 17 Sustainable Development Goals (SDGs) established by United Nations member states. The SDGs cover in particular the fight against poverty, the fight against climate change, the right to health and well-being, decent work and economic growth, clean and affordable energy, peace, justice and building effective institutions, responsible consumption and production, reducing inequalities, and building sustainable cities and communities.
“The impact investing industry is growing faster than we expected when we launched this strategy. Companies have taken on environmental and social issues more quickly than one would have thought. »
“With the significant growth of so-called impact capital, the challenge will be to see the effect on the real economy, at the risk of the industry being accused of impact laundering. »
In addition, the list of IRIS indicators, which are piloted by the Global Impact Investing Network and number in the hundreds, is also part of the tools used. Thus, one of the indicators in the agricultural sector relates to the use of pesticides over a given period. In the health sector, indicators target elements such as the number of people dedicated to the needs of children in an organization or the number of employees injured during the period covered. Finally, in the niche of indicators covering the SDGs, we find the surface area of buildings renovated or redone with a view to reassignment based on investments made over a specific period.
What are the challenges?
The rapid growth of impact investing, the appetite of a growing number of investors and the variety of methods for measuring impact, however, call for some caution. For example, the real impact of the investment should ideally be authenticated by a credible third party. The organization or company that raised the funds must also commit to producing regular reports. “Measuring social or environmental performance, or what we call impact, is still a difficult exercise. With the significant growth of capital that now calls itself impact, the challenge will be to see the effect on the real economy, at the risk of the industry being accused of impact laundering,” explains Réjean Nguyen, Director , Sustainable investment, at Addenda Capital.
In this respect, structuring initiatives such as the GIIN, the impact standards linked to the SDGs or the creation of the International Sustainability Standards Board (ISSB) aim to raise the quality of impact reporting. Given the emergence of an external verification industry as an accountability mechanism, impact investors should be able to operate within a framework robust enough to achieve the expected return and desired impact.
In short, the idea of investing with an “eco-social” impact without sacrificing returns is possible. “However, adds Réjean Nguyen, to broaden the pool of what is considered impact investing, investors may need to consider the idea of reallocating part of the financial return to the other pillars of return, which they either social and/or environmental. »
This content was produced by Le Devoir’s special publications team in collaboration with the advertiser. Le Devoir’s editorial team had no role in the production of this content.
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