Resetting the sustainable focus: Investing for impact

For a sustainable world, and continued sustainable investment income, trillions of dollars more must be channelled into impact investments, as well as investments that are socially responsible and environmental, social and governance (ESG) focused.

This shift is happening, but more momentum is needed. Leaders at Sanlam Investments highlight how it has started making the shift as an organisation.

The United Nations’ 2030 Sustainable Development Goals (SDGs) were adopted just over seven years ago at the UN Sustainable Development Summit in New York. These 17 goals aim to create a global drive towards tackling the environmental, political and economic challenges facing humanity.

Some progress has been made. A 2020 survey by The Forum for Sustainable and Responsible Investment (US SIF) indicated that more than US$17 trillion was invested in assets under management that were based on socially responsible criteria, up 42% from 2018 data.

However, the challenges – food security, climate change, poverty, inequality, lack of education (among others) – remain monumental.

Shortfall

According to an Organisation for Economic Co-operation and Development (OECD) report released during the height of the Covid-19 pandemic, in November 2020, developing countries were facing an additional US$1.7 trillion shortfall in the financing needed that year to stay on track to achieve the 2030 goals.

Funds earmarked to reach the SDGs had had to be channelled towards the urgent pandemic-related health concerns.

This US$1.7 trillion shortfall was in addition to developing countries’ existing US$2.5 trillion gap in annual financing.

To make even a dent in this gap, the available resources flowing into investments worldwide need to be galvanised and channelled towards change.

In a recent discussion, hosted as part of Sanlam Investments’ Critical Conversation platform, where topics such as sustainability and impact investing are tackled, Sanlam Investments CEO Nersan Naidoo said that business’s role has changed to one of figuring out how to make good financial returns while putting capital to work in areas that contribute to a sustainable world.

Impact, socially responsible or ESG investing – or all three?

During the conversation, the panellists – which included Naidoo, Mervyn Shanmugam (CEO: Alternatives at Sanlam Investments), Marthinus van der Nest (Head: Amplify Investment Partners) and Andrew Johnstone (CEO: Climate Fund Managers) – unpacked how impact investing can help to attain the SDGs.

Naidoo indicated that Sanlam Investments sharpened its focus on sustainable investments a few years ago. The company approaches it in two ways: impact investing for an immediate or visible impact (such as building a school or supporting the fight against rhino poaching) and by engaging with the companies it invests clients’ money in to strengthen their ESG fundamentals.

In 2020, Sanlam Investments partnered with international asset manager and sustainable investing pioneer Robeco to enhance its commitment to sustainable investment practices.

Naidoo said there have been many learnings from this journey, including that significant investment, governance and ‘school fees’ are required – but that if done properly, meaningful results are achieved.

For Naidoo a significant proof point in the Robeco partnership is that there isn’t a trade-off between doing good and making money. “You can actually improve the financial returns that you offer your clients if you invest sustainably.”

Interconnectivity of inequality issues

In unpacking the complexity of making an impact, it became clear to Amplify Investment Partners that solving a problem under one SDG is often linked to solving one under another SDG.

“An example is when you look at rhino poaching in the Kruger National Park. The area where most of it takes place is one of the most impoverished areas in the country,” said Van der Nest.

“We realised that if we don’t sort out the issues in the areas around the park, it would be impossible to solve the issues inside the park.”

As such, Amplify works with the Good Work Foundation to combat youth unemployment and the poor quality of education in the area, reaching 7 000 scholars that come through seven campuses on a weekly basis, as well as offering skills development and training at two academies to create opportunities for meaningful employment.

For Johnstone, who was joining the conversation via weblink from the Sharm el-Sheikh Climate Change Conference (COP 27) in Egypt, climate is at the heart of all the interconnected issues facing the world.

“Everything that we do – whether it is protecting rhinos or improving education – is all reliant on this little layer of gas, our atmosphere. All development topics are contextualised within our biosphere, and we have to stop whatever we are doing that is prejudicing that little layer of gas that is protecting us. Otherwise, all of our challenges will become increasingly difficult to overcome,” he said.

Where to start?

Faced with all these challenges, where do investment specialists and leaders start when making sustainable and impact investment decisions?

Naidoo said that a focus on both social and physical infrastructure is required for true impact.

“You get useful frameworks, like the SDGs, which give us an idea of where money is required, even when everyone has different perspectives.

“What is more challenging is that we are struggling to get enough funding into the right places to address these challenges and we need to understand how to inspire investors to invest where it matters, without it having to compromise their investment returns.

“Investing for impact and changing the world is not a competition,” he added.

“It is something that we all need to work towards – and partnerships are one way we can do that.”

Brought to you by Sanlam Investments.

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