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According to a report published by Morningstar, through the third quarter of 2021, global sustainable funds boasted almost $4 trillion in assets. This included more than $330 million in U.S. sustainable mutual funds and ETFs, which is almost twice the level of a year ago. A new wave of ‘conscious consumerism’ has upended the conventional model of conducting business, generating revenues and distributing profits. Consumers are now acting as gatekeepers of society and stewards of preserving and protecting nature. These aggressive consumers expect corporations to imbibe the same ethos as they go about manufacturing products and rendering services. When Paul Polman took over the helm at Unilever in 2009, he initiated a move, which at that time was almost unthinkable. Polman dismantled the otherwise sacrosanct practice of issuing quarterly earning reports in favor of a longer-term value-creation model that embraced equitable and sustainable business practices.
Judith Rodin and Saadia Madsbjerg, former President, and former Managing Director, respectively, at the Rockefeller Foundation, in their path breaking book “Making Money Moral” illustrate how the practice of ‘impact investing’ can be transformed from an experiment into an ingrained corporate ‘habit’ by a cohesive involvement of ‘problem solvers’/change makers, asset owners and businesses. This unique and near paradoxical juxtaposing of cause and capital has turned out to be a proven device in effectively upping the ante in the realm of Environment, Sustainability and Governance (ESG).
The book is replete with examples of what is already working like clockwork in terms of collaboration, and a sprinkling of recommendations where such partnerships are visibly inconspicuous.
The Seychelles government, in 2018 issued a novel financial instrument designed to raise funding for preserving and improving the life of the Seychelles populace by encouraging sustainable marine and fisheries projects. It was the world’s first sovereign blue bond. With able assistance from the World Bank Treasury for the development of the bond itself and three reputed investors in the form of Calvert Impact Capital, Nuveen, and Prudential Financial—the blue bond raised $15 million. The proceeds from this bond have funded 17 projects, ranging from the strengthening ocean ecosystem protection to those that support sustainable marine enterprises.
As Rodin and Madsbjerg write, the concept of ‘impact investment’ is gaining sustained traction. The United Nations’ Principles for Responsible Investment (UNPRI)— is embraced by 3,110 signatories. These include some of the world’s largest investment managers, such as BlackRock, State Street Global Advisors (SSGA), Amundi, and Fidelity. Globally adopted ‘metrics’ such as Impact Reporting and Investment Standards (IRIS) and the Global Impact Investing Rating System (GIIRS), ensure that adherence to ESG and impact investment transcend mere lip service.
A conscious and concrete collaboration between asset owners and investors can at times work absolute wonders. An alliance between PensionDanmark (one of Europe’s 50 largest pension funds with €36 billion ($41 billion) in assets under management (AUM) at the end of 2019), and a large Danish fossil fuel energy company, named DONG Energy, led to not just the transformation of DONG Energy into one of the world’s largest renewables energy company (DONG renamed itself Ørsted), but also paved the way for PensionDanmark to invest in a slew of large-scale renewable infrastructure projects. In 2012, Pension Danmark founded the Copenhagen Infrastructure Partners (CIP), a fund management company that by 2020 had seven funds with around €9.5 billion ($10.7 billion) in AUM, around 50 institutional investor members.
As the authors illustrate there is a bevy of investors who are placing their bets on impact investing and ESG. This group includes pension funds, insurance companies, sovereign wealth funds, development finance institutions, endowments, high net worth individuals, and the mass affluent. In March 2020, three gigantic pension funds jointly issued a statement, that clearly expressed their intent to stay away from companies that placed emphasis on shareholder value at the cost of stakeholder preservation. These three behemoth funds were Japan’s Government Pension Investment Fund (GPIF), the United States’ California State Teachers’ Retirement System (CalSTRS), and the UK’s the Universities Superannuation Scheme (USS).
The domains and spheres of the collaboration between NGOs and for profit corporates make for a hotbed of ingenuity. DBL Partners, headquartered in San Francisco has a penchant for investing in companies experimenting in and with clean technology, mobility, sustainable products and services, healthcare, and information technology. DBL Partners for example choose for investment, Apeel Sciences, a company founded to reduce food waste. Apeel’s protective coating of edible plant material decelerates the water loss and oxidation leading to spoilage, and thus bestowing a longer life to perishables.
Gender equality and inclusiveness is also an uncompromising requirement for attracting investment. State Street Global Advisors, the investment management arm of State Street Corporation, as part of their ‘Fearless Girl’ campaign, commissioned the Fearless Girl statue in front of the New York Stock Exchange. Erected in front of the famous bronze Charging Bull, the Fearless Girl symbolized gender-equality aspirations. Since the inception of the statue, nearly 700 companies that previously had no women on their boards have appointed at least one woman.
However, as could be expected in any alliance, there would be objectives working at cross purposes. Money managers and problem solvers may diverge on timelines for obtaining funding as well as completion of the projects. However this in itself is not an insurmountable obstacle.
The authors end their book on an optimistic note and also set out five integral and integrated pillars for facilitating a seamless relationship between all partners, that would usher in a benevolent societal change. The five pillars being: “Willingness and ability to assess and absorb new information and adjust quickly using monitoring and feedback loops; diverse and redundant backups and supply chain alternatives to access if one part of the system is challenged; seamless information sharing, decision-making, and transparent communication that ensures coordinated action across their entire operations; strong self-regulating capabilities, so failure in one part of the system can be delinked, preventing its spread and permitting safe rather than catastrophic failure; and an ability to be nimble and adjust quickly to changing circumstances by developing new plans and taking new actions”.
“Making Money Moral” – compulsory ready for policy mavens, market makers, heads of state, bureaucrats and everyone interested in and intending to make the world a tad bit better.