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Investors demanding more ESG and Impact Investing

by Lewis Panther | 26 Jun 2019

Australian investors are catching up with European counterparts when it comes ESG and Impact Investing.

That’s the view of one of the leaders in the fast-growing field who will be a keynote speaker at The Summit 2019 - The Age of the Customer - later this year.

Giles Gunesekera, CEO of Global Impact Initiative, says consumers from all age groups are demanding to know where their superannuation funds are being held.

Both baby boomers and millennials want to have a clean conscience as well as a well-performing portfolio, he says.

“Looking at the change, it’s definitely for the better from an industry perspective,” he said. 

“We continue to get lots of interest from people wanting to invest in different impact investing strategies. 

“We're very close launching two specific impact investing funds. One is a women and girls impact strategy. The other one is a social impact fund, which we're launching with several indigenous partners. 

“It’s a cash fund that has no alcohol, gaming, tobacco, fossil fuels, weapons or adult entertainment companies. It’s a very clean portfolio.

“We have an algorithm, which will look through the portfolio and measure the positive impact these companies have and their contribution to the UN’s  sustainable development goals.

“Everything we do has to have a financial return. And social impact goals are aligned to the United Nation's sustainable development goals.”

Funds under Gunesekera’s management get measured to see how they are positively impacting across a range of social impact areas such as gender equality, education, renewable energy, water and sanitisation. There is a high level of transparency as you will see how your portfolio is operating from a financial and social impact perspective. 

GII is also using its skills to engage in bricks and mortar projects. 

“We’ve been engaged to build a hospital in Dhaka in Bangladesh that is being structured as an impact investment. We are working with local banks and foundations. 

“The private hospital is mainly for the middle class, but we will be able to take some of the profits from the hospital to provide free healthcare to people that can't afford it. 

“There's no public system in Bangladesh. The hospital is located where there's a lot of garment factories and a lot of low socioeconomic workers.  

“We're also looking at lots of interesting models around telemedicine and mobile clinics.

“In the construction process we will be utilising renewable energy, a passive heating and cooling system, using local labour, local products, etc. The ability to be innovative from a financial and social impact perspective is really exciting and great things happen when you put people first!”

Investors in the project are mainly from Europe, which is the benchmark when it comes to impact investing.

He said: “ESG has been implemented and integrated into the investment process in Europe. They are now moving to deliberate investible impact themes aligned with the values of their investors. 

“We've already got quite a lot of the European interest. The Europeans don't need as much convincing that this is possible, whereas Australians investors are conservative.

“If you want to manage the portfolio for a northern European pension fund, you’d better make sure that you've got an ESG policy and approach. 

“Otherwise you are just not going to get through the door. In places like the US, it's still evolving.

“Australia is somewhere in between. Europe's the benchmark.”

But how is GII making sure it adheres to ESG principles?

“We will not appoint a manager if they can't screen out alcohol, gaming, tobacco, fossil fuels, weapons or adult entertainment companies,” he says. 

“We want our clients investing in clean portfolios.

The billion-dollar question. Doesn't this kind of investment come at a cost to profits.

Gunesekera is adamant it doesn’t.

“The hospital would generate somewhere between 12 to 15% returns, but at the same time create incredible social impact for people that have no access to health care.

“This is the duty of an area like impact investing. You are mapping and measuring how many people are being positively impacted from going to that hospital. 

In Australia, we’re slow adopters. We'll take time to do our homework, the research and then we will follow reasonably quickly.”

In fact, Gunesekera says there are investors who are already monitoring their funds and demanding transparency on ESG.

“There are investors contacting their fund on a daily basis,” he adds.

“They are saying you need to do better. You need to invest. You need to think about the environment. You did think about the ocean. You need to think about women.

“That's happening. It's not that it will happen. It's already happening on a daily basis.

“You've got the baby boomers, the people that are in charge, basically saying ‘I want to consider our need to do things better. I need to think about a different way of investing’. 

“And then you've got the millennials - who are probably about the age of their children or grandchildren - saying ‘we need you to do better’.

“We’ve got this thing called super and we can pick it up and go somewhere else at any time. 

“Millenials know we can't touch it for another 40 years, but we want to have an impact right now as to how it's invested. If we don't look at things like climate these millennial investors are not going to retire into an environment that they're comfortable with.”

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