Impact equity investing looks to achieve a financial return alongside generating positive, and most importantly, measurable environmental and social impact. For 2021, NN IP has collected and analysed key performance indicators for each company’s impact to accurately demonstrate impact in two ways: relative to total fund AUM and calculated per EUR 1 million invested.
Gathering momentum
Marina Iodice, Senior Portfolio Manager Impact Investing at NN Investment Partners, comments: “Momentum is building strongly for impact equity strategies as asset owners and institutions – notably family offices and pension funds – continue to increase allocations. This has been aided by government sustainable development programmes – by channelling public investment into sustainable strategies, the European Green Deal and other programmes are encouraging private capital to follow suit.”
The Global Impact Investing Network’s (GIIN) Annual Impact Investor Survey 2020 reported that 60% of investors now see contributing to a global agenda such as the SDGs as a ‘very important motivation’ for making impact investments.
Shareholder activism is also playing its part in the growing appetite for the asset class with investors holding companies to account and calling for action on a variety of important issues such as cutting greenhouse gas emissions and improving living standards.
A focus on social
The COVID-19 pandemic brought with it a rising awareness of the social challenges which require higher levels of investment to solve. Alongside the proliferation of environmental and climate focused funds, investor demand has evolved to also focus on social issues such as rising inequality, supply-chain management, and the support of small and medium-sized enterprises (SMEs).
NN IP’s strategy focused on health & well-being delivered strong measurable impacts in this area during 2021, providing 715,000 people with nutritious food solutions. EUR 1.5 million in health benefits were paid to people in developing countries, and 574,000 were provided with basic infrastructure in underserved markets. 46,200 COVID-19 tests were provided to alleviate the impact of the pandemic, and 821,000 innovative diagnostic tests for other conditions were also provided.
Marina continues: “We have seen a rise in demand for those funds offering a social angle, as investors demand a more sophisticated approach to ESG investing. COVID-19 has laid bare the rising inequality in society, flaws in supply chains, and numerous other major issues. Public demand for effective solutions to these problems will necessitate the flow of capital to outcome-orientated funds.”
The wider impact in numbers
With EUR 2.1 billion in AUM (as of July 2021), NN IP’s impact equity strategies offer a range of four impact equity funds, devoted to the challenges health & well-being, climate & environment and smart connectivity.
The strategy devoted to climate & environment issues avoided 220 kilotons of CO2 emissions, as well as saving 301 million litres of water usage during the year. A key portfolio holding was Sika AG[1], a global manufacturer of construction materials providing low-emission solutions in many areas. Over 65 million tons of CO2 emissions can be saved annually thanks to Sika’s admixtures, which reduce cement consumption and clinker content.
Within NN IP’s strategy dedicated to making the world a more connected place, 6,423 entrepreneurs and SMEs were provided with tools and services to boost productivity. Society was also made a safer place, with 19km2 of buildings protected against fires hazard and 4.3 million security identifications completed.
One example from the portfolio is Etsy[2], a two-sided e-commerce platform which created 3.8 million jobs in the independent worker economy in 2021. This investment promotes the creation of decent jobs and encourages the growth of SMEs, contributing to SDG 8.3. The platform now has 7.5 million sellers, with 79% identifying as women.
Transparency
NN IP’s Impact Equity Report also highlights that while transparency of reporting has increased, there is still room for improvement. With current levels of disclosure often low or non-existent, work is needed to ensure the relatively high standards of climate reporting are replicated for funds focussing on social issues.
Regulation such as an EU Social Taxonomy, currently under discussion, will aim to raise the bar for the disclosure of companies’ performance on ESG issues broadly, and stimulate more sustainable behaviour. Although it will take time for these regulations to come into effect, activity is already ramping up.
