Green Dream with Ashmore’s Cooke: Growing demand for impact investing despite ESG backlash

In this Green Dream video interview, Simon Cooke, manager of the Ashmore Emerging Market Debt Impact strategy, discusses how directing capital to emerging markets can help achieve Sustainable Development Goal (SDGs) targets, the transformations that can take place via impact investing and the strongest demand for impact strategies “I have ever seen”.

Watch the full video interview above and read the transcript below.

NK: Hello. Welcome to the Green Dream. Today I’m talking to Simon Cook, who is manager of the recently launched Ashmore Emerging Market Debt Impact strategy. Thank you very much, Simon, for your time today.Tell me tell me more about the Ashmore impact strategy that’s recently been launched. What sets it apart from others on the market? I understand it’s an Article 9 under SFDR, does it have a label under SDR yet?

SC: I’d say those three things that separate, how we do things from what’s on the market already. First is where we invest. Second is what we invest in. And third is how we invest. So where we invest the purely in emerging markets so we can connect to the conversation as to why that is an emerging market strategy. Second, in terms of what we invest in it’s a fixed income fund. To date most in that impact investing that in private markets.

Some have been invested equities. We’ve seen as a huge growth opportunity in fixed income. So that’s what we’re investing in. Fixed income. And third is how we invest. We aren’t typical as we access to the entire fixed income opportunity set within impact. Secondly, we’re ambitious within that universe. Every holding has pass both our impact assessment and fund assessment and then lastly we need to be accountable.

That means that every year we report the impact of every single holding in the fund and the overall strategy. And that’s both positive and negative. We’re not trying to greenwash to show people what are the outputs and outcomes associated with their investment.

In terms of the SDR label at the moment, those regulations only apply to UK domiciled funds. And this fund is a Luxembourg-domiciled fund. So it doesn’t apply to this fund today. What I would say is that when we were constructing the impact framework we were looking at the SDR impact label, making sure that we are aligned with it so that if they broaden the universe in future this fund would immediately pass. 

So in spirit, yes, in technicalities no. 

See also: Impact investment offerings ‘could serve as a valuable USP’, according to wealth managers

NK: Tell me what this fund is trying to achieve in terms of the emerging market debt and impact universe. Why is it important for investors to be directing capital to this area?

SC: Let me answer the second part of the question first. In terms of why it’s so important, let’s look at the UN Sustainable Development Goals. So there are 17 goals, 169 targets adopted by all your states back in 2015 as a series of goals they wanted to achieve by 2030 incorporating economic, environmental and social sustainability. 80% of those targets are behind schedule. We are not on track to meet a single one of them, and there’s a $24trn funding gap – all of that funding gap is in emerging markets.

But if you are serious about trying to contribute towards the SDGs, you cannot ignore emerging markets. And not only that, it should be the focus of your attention, because the funding gap is there. In terms of what we are trying to achieve and why we think EM impact debt that is so attractive within that context, it’s the scale, the impact and the return you can generate.

The fixed income impact universe within emerging markets is now over half a trillion dollars, it’s growing at $100bn a year. Five years ago, it was less than $100bn. So you can achieve real spend in the market. Secondly are the returns you can generate. Foreign currency EM debt, of which impact is just a sub portion, has consistently outperformed developed markets over the long term. So it’s not you’re not talking about giving up on returns while allocating to impact. And the third component, what really sets apart is the impact you can generate for every dollar you invest in emerging market impact that you generate between 2 and 20 times the impact you generate versus developed market impact debt – it’s transformational.

We think those three factors combined make it really attractive. And what we’re trying to achieve is making impacts to allocate towards that asset class and help scale up and deliver a real transformational impact alongside attractive financial returns. 

NK: Let’s get a bit more of a flavour of what the fund looks like and what the sort of themes and positions look like. Can you tell us a bit more about that?

One of the factors that I mentioned is getting access to the whole opportunity set within impact within emerging market fixed income. What does that mean in practice?

We have an allocation to all 17 of the Sustainability Goals, from gender equality to no poverty to sustainable infrastructure to climate action, we’ve got allocations across all of them. That’s part of the beauty of emerging markets. The needs are so diversified but so too are the opportunities. We think there are two particular themes which are very compelling over the next few years, which are renewable energy and telecom infrastructure.

Why they’re so important is that they are enablers of other SDGs. As you build up new energy and as you build up telecom infrastructure, you enable people to participate in the economy in a sustainable way and across multiple factors. When you think about renewable energy, to give you a kind of more concrete example, places like Indonesia where if you’re financing geothermal energy, it’s emissions 90% low incumbent… that’s a massive reduction in emissions.

Let’s think about building a telecom infrastructure in sub-Saharan Africa? You’re operating in places where there is a road infrastructure or electricity grid and that you’re providing access to the internet for the first time. I mean, it’s not just Instagram and TikTok, we’ve got access to e-commerce, education to e-banking and so on. So it makes it an enabler for you to have access to the wider economy.

We think that’s a particularly attractive opportunity for the next few years. I mentioned that because the opportunity set is so wide and broad in EMs, we have confidence they will be played out through other projects, whether it is economy action or more gender equality or inequality, and so on and so forth.

NK: I understand there are plenty of opportunities at the moment, as we’ve seen recently, there’s been a bit of a backlash against this sustainability and impact.What would you say is your outlook for the next few years in terms of demand?

First of all, is the backlash against sustainable investing is, I think in some sense justified. When we think about what the industry was claiming was ‘give us money and we will go and generate all these lovely, positive things for you’. And it hasn’t done that. I suppose there has been some cleaning up of portfolios, but it hasn’t had real world outcomes.

So I think it’s healthy. Where we see impact investing in growing in importance and growing in attractiveness because it has that specific intention to try and generate real world outcomes, it has specific design around how you contribute towards those real world outcomes and you measure it. So like I mentioned, every year we will report on the outcomes associated with every investment. That is transformational compared traditional sustainable investing. 

And so the reaction was slightly justified, impact can do something better, and more transparent in the outcomes it can achieve.

The second thing I’d say on this is in terms of that pipeline or the market trends, the pipeline of potential demand for our impact strategies probably it’s the strongest I’ve ever seen.

So although there might be a backlash against wider sustainable investing, there is growing demand for impact investing. And the last thing probably worth covering on this topic is whether our strategies rely on businesses who need subsidies from governments to operate. And that’s not how we run. We are looking to in successful businesses that generate financial returns alongside positive impact, regardless of what subsidies.

It’s not susceptible to kind of changing the government policy that we’ve seen. It’s about creating real world change and the pipeline, but demand for it is the greatest it has ever been. 

NK: Thank you very much for your time, Simon. Really good to have you on the Green Dream.

SC: Thank you for inviting me.