Impact Investing Explained

Hari Balkrishna

To us, impact investing is about embracing ESG as an opportunity, and not just looking at it as a risk.

The companies that we're looking for are the companies that are delivering positive environmental and social impact, as well as a positive financial return.

We are at a point in public equity markets where we can access a lot of these opportunities now, where there are companies, so their business models are doing exactly that.

It's really important because, ultimately, when we think about impact investing, these are companies that are on the right side of change from a consumer preference standpoint, regulatory preference, and an industrial preference standpoint.

Hari Balkrishna

We're really excited about partnering with our clients in delivering impact and financial performance, because ultimately our view is in this really complex world of investing, and in this really complex world of these environmental and social problems we're trying to solve for.

s asset managers, we can make a huge difference in helping our clients direct their capital towards those investments that are delivering positive environmental and social impact.

But equally, those are the investments that, we believe, are on the right side of change from an investment perspective, and can deliver positive financial returns for our clients as well. So that partnership aspect is really important, and I bring up the complexity because a big part of the excitement here as well is partnering with clients, being transparent about our impact investments, having that dialogue, and making us as an investment industry better in terms of channeling capital towards the positive actors.

And we can use tools like proxy voting, like active engagement, strategic dialogue with companies as well, where we can use our scale to really make the best use of our clients' capital to deliver the positive impact and the positive financial performance.

Hari Balkrishna

We measure impact across two dimensions.

Firstly, when an impact investment goes into our portfolios, we're ex-ante trying to measure what key performance indicators we're going to hold these investments to.

We use the five dimensions of impact framework, so we identify what the strategic goal of the impact is, who is getting affected, what the scale and the depth of the impact is and what the impact risk is. And that's being done for every stock that goes into the impact portfolios.

The other aspect of this impact measurement is the ex-post measurement, and we use the theory of change framework to identify, looking back against our key performance indicators, what was the impact that was actually delivered. So for instance, you take a renewable energy company. Our KPI might be what are going to be the megawatt hours of renewable energy generated by this company. And the ex-post measurement will actually measure what that company really did against what, we expected it to do.  

It's really important to measure impact in our view, because when we’re investing in these companies with the intentionality of impact, we want to actually assess these companies at a later stage to see if they've actually delivered the impact that we think they're going to deliver.

In many ways, impact investing and measurement are very similar to financial Investing and measurement. Just like you've got a thesis on a stock and you hold the stock to that investment thesis. On the impact side, it's exactly the same, you have an impact thesis, an impact intentionality and you hold the stock to those KPIs.

Hari Balkrishna

We're focused on investing and impact across 4 criteria. Every investment has to meet those 4 criteria. We start with materiality, so every investment has to be delivering impact that is material to its business model, and we use revenues or profits as a proxy measure for that materiality.

The second aspect is measurability, so measurability both ex-ante when we look at the revenues and profits, but importantly ex-post as well. Taking a look back on the companies and what impact they've actually delivered and measuring that.

The third aspect is additionality. As a public equity manager, we want to be making a difference to the impact that's actually being delivered through our involvement.

And the final point is resilience. Every impact investment needs to be resilient from a financial perspective. When we take a prospective view on industry structures or business modes, economic returns have to either be expanding or preserved. If it's a renewable energy company, it’s got to have better top line or better bottom line prospects in the market when we're investing in those, for instance.

Hari Balkrishna

The reason I'm really passionate about impact investing is my background has really informed this decision for us to launch this product. When I think about my background, I lived and worked in five different continents, I was born and raised in India, lived in Latin America for a while, spent time in Australia, the U.S., and Europe for the last 11 years. That's really given me an appreciation for different social constructs around the world, what works, what doesn't and a real appreciation for all the issues that that are sort of ahead of us as a society to solve for.

From an inequality perspective, in terms of access to opportunity, access to credit, access to bringing the best out of everyone really in this world.

And then on the climate side, I've always had a personal passion for solving for climate change. And I do believe we're at this point now as an investment industry where we finally have these amazing investment opportunities that are not just delivering the financial performance, but can actually solve for climate change through technological innovation, through their focus on their business models and what they're doing for energy efficiency or decarbonisation. And being able to sort of put those two together in products that can actually deliver positive impact and positive financial performance, for me, is a dream job.