As our world faces a myriad of environmental, social and geopolitical challenges, there is no doubt that sweeping changes must be made to ensure a sustainable and equitable future for generations to come.
The latest UN report on climate change sends a stark warning: we have passed the point of no return. We must act quickly to find alternative energy sources and new forms of technology.
The terrible situation in Ukraine has further highlighted this need, not only for humanitarian reasons, but also to break the dependence of so many nations on Russia for oil and gas.
Later today, I will tell an audience at Gresham College how the private sector, and impact investing in particular, can play a leading role in addressing these issues, making the world a fairer place. and safer.
The term “impact investing” covers all investments that – intentionally or unintentionally – have an economic, environmental and social impact.
This represents an opportunity to reset our economy and reassess what we want our planet, our society and our future to look like.
As we build on the economic recovery from Covid-19, businesses need to put their money where their mouth is. Shifting more investment from areas that simply avoid doing harm to those that provide real solutions will unleash the power of finance to accelerate the COP26 Just Transition Declaration and government’s upgrade agenda. Basically, it can also fund the Sustainable Development Goals set by the UN.
So far, ESG investment measures have focused heavily on environmental impact.
However, both leveling up and just transition programs need to pay equal attention to social impact, as companies that might score high on environmental issues may also have serious social and human rights issues in their operations. supply chains.
The International Finance Corporation estimates that impact investing in private markets could represent up to $2.1 billion in assets under management. Currently, however, only $505 billion is clearly measured for social and financial impact.
This could be boosted by global convergence and the strengthening of existing impact data and measurement structures.
Simply put, businesses need a framework in place to measure and demonstrate how they are making the world a better place. Words alone are not enough.
We need a more accurate measurement of impact investing to unleash the power of finance and put concerns about “impact washing” into the history books.
We must ensure that savers and investors who wish to prioritize ESG factors can have full confidence in the authenticity of the products offered to them.
This will encourage genuine and effective investor engagement and ensure greater impact as this capital is deployed.
Work is already underway. Financial institutions will be required to publish estimates of carbon emissions related to their loans and investments, in accordance with draft international standards published by the International Sustainability Standards Board.
The UK and the City of London are pioneers in impact investing and, with the insights gained from two decades of practice, are uniquely positioned to drive this critical change.
There are real opportunities for investors to achieve financial returns while tackling inequality and supporting more inclusive and sustainable development.
With a measurable social impact, this model can succeed. After all, investing in the future of society is just good business sense.