Can sustainable investing have a real impact?

– Argues that the evidence supports the claim that ESG integration is a good risk management tool.
– $6 trillion a year is needed to fully meet the UN Sustainable Development Goals (SDGs).
– Innovative thinking is required when looking to shift capital into the areas that most need investment, like blended finance.

Natixis Investment Managers continues to pump out some nice thought pieces. This article clearly explains the problems with the divergent ESG rating services today.

Then it goes on to say that the discussion over data obscures the more important discussion of whether ESG factors in investment processes can make an impact. Here’s an excerpt from that:

Yet the seemingly endless discussion about ESG data, and whether alpha can be derived from that data, often obscures a perhaps far more important discussion. That is, whether or not the incorporation of ESG factors into investment processes also has ‘impact’.

We would argue that this impact – or achieving societal outcomes through ESG integration – is what we had in mind when we started our ESG journey many years ago. The evidence we have uncovered thus far seems to support the claim that ESG integration is a good risk management tool. However, to ‘make a better world’, other ESG practices are likely needed.

And then here is the lead into the analysis of how investors can have an impact (think “blended finance”):

Estimates suggest that a whopping $6 trillion a year is needed to fully meet the UN Sustainable Development Goals (SDGs). The SDGs are the world’s to-do-list of large problems to solve. They have also become a key reference framework for managing and investing for positive impact, ranging from the fight against poverty and hunger to the development of sustainable cities to the emergence of responsible methods of production and consumption.

It’s clear more needs to be done to get capital flowing, particularly to developing countries. The burning question for investors, therefore, is how can they contribute more effectively to addressing some of the world’s most significant challenges?

Innovative thinking is certainly required when looking to shift capital into the areas that most need investment. One workable solution is ‘blended finance’. This uses public funds to encourage private investment, the result of which can finance projects or businesses that, under normal circumstances, would be ‘un-investable’.

Typically, these projects provide not only financial returns for investors, but also economic, social and environmental benefits for local communities. And in recent years, thanks to blended finance, hundreds of millions of dollars have been poured into areas like sustainable forestry, fisheries and agriculture to help protect the natural world.