Large Managers Can Move Needle on Impact
Schroders’ first group-wide impact investing report shows solid alignment with client priorities, and can serve as a blueprint for other managers to raise standards.
Stronger demand from pension funds for impact investments has begun to increase the flow of commitments and solutions needed from large asset managers to accelerate growth in the sector.
Last week, UK asset manager Schroders released its first group–wide report on impact investing, looking to provide a detailed summary of the “tangible impacts” of its impact-driven investment range. This marks the culmination of the acquisition by Schroders of impact-investing expert group BlueOrchard, which also resulted in the development of its impact framework.
The firm’s impact-driven range encompasses 20 funds focused on a broad spectrum of asset classes and geographies – including listed and private equity and debt, infrastructure, real estate, and multi-private asset solutions.
The range represents approximately US$5.25 billion in AUM across Schroders, Schroders Capital and BlueOrchard, having so far invested in companies, funds and assets supporting 504,646 people – including 91,569 with healthcare services, 36,068 with digital services and 67,763 with financial services.
The example provided by Schroders – which sits just outside the top 10 largest UK asset managers and had £750.6 billion (US$970.4 billion) in AUM as of February 2024 groupwide – demonstrates wider heightened attention from large managers on impact investing.
Karen Shackleton, Founder and Director of pension fund advisor Pensions for Purpose, told ESG Investor the report reflected wider market trends. “Asset managers will respond to what their clients are looking for. We’ve seen a better understanding amongst pension funds of what impact investing is, and a desire to start investing that way and ask asset managers if they have anything in this area.”
Increasingly, managers are responding to that demand, Shackleton argued.
“We have to engage with larger asset managers if we’re going to move the needle here,” she added. “The larger managers have suddenly realised, because their clients are asking for it, there’s demand for impact investment strategies, so now [there] is a much more blended universe of both large and small investment managers.”
A framework to advance impact
Last September, BNP Paribas’ ‘ESG Global Survey 2023’ forecast that impact investing would overtake ESG integration as the most popular strategy for investors to achieve sustainability. The group surveyed 420 asset owners and managers, including hedge funds and private equity firms. Fifty-four per cent of survey respondents said they expected to use impact investing in the next two years, up from 45% at the time of the survey.
In 2022, the Global Impact Investing Network estimated that the market was as large as US$1.164 trillion, marking the first time it had broken the trillion mark. According to recent estimates, the global impact investing market has now passed the US$3 trillion mark, and could reach US$7.78 trillion in 2033.
Last year, Schroders found that almost 60% of the 700 global investors included in its 2023 institutional investor survey identified impact investment as their preferred approach to sustainable investing.
Schroders’ impact framework consists of three core pillars – impact management, impact measurement and monitoring, and impact governance – which look to ensure that investments will deliver positive social and environmental outcomes, alongside financial returns. The asset manager has applied this to all 20 of its impact funds.
“The framework aims to guarantee that impact considerations are deeply embedded into the investment process, leveraging impact management principles, measurement tools, and governance structures,” said Maria Teresa Zappia, Global Head of Impact at Schroders. “This approach helps us to identify, invest in, and engage with companies and assets that are generating positive social and environmental outcomes while ensuring that these investments do no significant harm.”
In addition, Schroders has selected five overarching impact themes – inclusion, health and wellness, environment, responsible consumption and production, and sustainable infrastructure – in a bid to align with the UN Sustainable Development Goals (SDGs), and respond to critical global challenges.
Shackleton highlighted Schroders’ work around impact governance as novel – especially in the way it was presented in the report, as well as praising their SDG alignment, and range of case studies.
“Investors should compare the report with [those] being produced by other managers, and perhaps challenging them to raise standards – which has worked effectively for pension funds previously,” she suggested. “What Schroders is offering is quite well-aligned with current pension funds demand. However, the themes most central to impact are likely to evolve over the coming months and years.”
Parallel streams
Pensions for Purpose has also been working on a set of systemic themes with asset managers and consultants to effect change over a three-year period. These so far include sustainability and impact integration; diversity, equity and inclusion; place-based impact investing; health and wellbeing; climate innovation; and biodiversity and natural capital.
“There’s no doubt that biodiversity is the new major theme that’s coming through,” said Shackleton. “Biodiversity-related SDG goals weren’t appearing on pension funds’ radars, but they will they have to. If we do this analysis in, say, 18 months’ time, you will start seeing land and water-focused SDG goals come through – which relates more to their biodiversity goals.”
Meanwhile, some social themes – especially around housing – have been gaining traction over the past 12 months in the UK, and will require increased support from the government.
“Place-based investing can help to tackle some of the country’s largest challenges, from affordable housing and town-centre regeneration to delivering on the UK’s commitment to a net zero future,” added Schroders’ Zappia.
The post Large Managers Can Move Needle on Impact appeared first on ESG Investor.