September 2023 / INVESTMENT INSIGHTS
Harnessing the Power of US Impact Investing to Drive Positive Change
Seeking to invest in profitable companies addressing important environmental and social problems.
- Significantly more capital is required to help solve some of the world’s most important problems. Innovative US companies are uniquely positioned to drive large‑scale environmental and social progress.
- More US companies are appreciating the durable financial opportunities that come along with addressing key pressure points impacting the planet and communities in which they operate.
- We see potential to deliver attractive returns and positive measurable impact through thoughtful investment and engagement with US companies with global reach.
The extreme events over the last few years have driven a new era of accelerated action, providing attractive opportunities to invest in companies that are helping to tackle some of the important environmental and social problems we face today. We see increasing investor desire to invest in companies that are looking to drive improvement and change across the world. We expect this momentum to continue offering a tailwind for impact‑oriented investments, and particularly those in US equity markets, where we expect the rate of progress to be significant.
Momentum Has Continued to Build for Environmental Sustainability and Social Equity Action
We are witnessing a step change in thinking regarding health care, social equality, and environmental protection. We are seeing policymakers, capital allocators, and businesses move beyond tentative steps into much more material action. As investment managers, we see the current environment aligning with our dual mandate of pursuing positive environmental and/or social impact, alongside financial returns.
Achieving Impact Through Publicly Listed Investments
Impact investing originated with private investments, but over the last decade, the category has broadened out to all capital markets. With approximately USD 109 trillion in global market cap, public equity markets bring tremendous scale and liquidity to impact investing. The US public equity market is the largest and most liquid market with around USD 46 trillion in market capitalization.1 The sheer size, combined with the innovation and leadership in areas like technology and health care makes the US an extremely attractive market for impact investors to focus, in our view.
In 2015, United Nations Member States adopted “the 2030 Agenda for Sustainable Development” with 17 Sustainable Development Goals (UN SDGs) at its core, intended to help achieve a better and more sustainable future for all (Figure 4). It is estimated that it will require USD 5 trillion–7 trillion in annual investment through to 2030 to meet the UN SDGs, which means that we shall need impactful investment from all asset classes to help achieve these goals. We use the UN SDGs as our north star, and every one of our investments is aligned to one or more of those goals.
Investing for impact in public markets, however, goes beyond simply owning and capturing the economics of companies with impactful business models. It is important to direct capital toward companies that we believe are driving material impact outcomes, but also to amplify the impact being generated through deliberate company engagement, proxy voting, and the associated influence feedback loop. Thoughtful impact engagement with company management teams is a valuable tool to help influence change. Impact investors can also strive to move company‑specific environmental and social impact agendas forward by actively engaging with companies on their specific impact themes. T. Rowe Price’s strong presence and reputation in the US market results in particularly effective engagements, with management teams looking to collaborate with us, in many cases, as they develop and evolve their sustainability strategies.
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