Destination of technology investment flows from large investment funds and hedge funds: financial and socially responsible investment criteria

"Given the institutional relations between Fide Foundation and London Business School, last June 10th, Fide organised a session at the London Business School Campus, to address the importance of socially responsible financial investment criteria, and it’s role in the development of technology."

Panelists: Ben Constable, Head of Sustainable and Impact Investment at M&G. Joined M&G as an Investment Specialist in 2003; Gareth Davies, Head of Responsible Investment Business & Head of Official Institutions at Columbia Threadneedle. Member of the UK Social Impact & Distribution Advisory Group; Pedro Jacome, Director at GAM Investments responsible for relationships with Latin America. MBA University of Oxford.

Moderator: Yiorgos Mylonadis, Adjunct Professor of Strategy and Entrepreneurship at London Business School. 

The panelists kicked off the session focusing on Solutions through sustainable and impact investment.

They pointed out the critical role that ESG investment plays in solving key global risks. Using the World Economic Forum’s Global Risks Report, these top risks were divided into Economic, Environmental, Geopolitical, Societal and Technological.

Moreover, key distinctions were made between ESG and Impact. On the one hand, ESG assesses the sustainability of a company’s operations and is applicable to every company in every sector; on the other hand, impact measures the external impact generated by a company’s product and services and only includes companies with ‘net positive impact’. Furthermore, ESG is primarily a risk mitigation tool, whose self-reported data is aggregated by ESG third parties, while Impact is an outcome-based approach where data is not always available.

The UN Sustainable Development Goals (SDGs) is the universal language to articulate and measure impact. These can be grouped into climate action, environmental solutions, circular economy, social inclusion, better work and education, and better health, saving lifes.

Three main criteria are used when scoring listed equities for impact investment eligibility: Investment, Intention, and Impact.

  • Investment refers to the quality of the investment looking at companies, business model, competitive positioning, capital allocation, and business risk and liquidity.
  • The intention, refers to the culture of the organisation focusing on companies’ mission statement and purpose, strategic alignment, and implementation.
  • Impact refers to the positive effect the company generates with its products and services. In particular, this looks at companies’ impact balance, measurability, materiality and additionality to SDGs.

In general, the objective is to look for above average quality and intentionality – alongside meaningful measurable positive societal impact.

And case studies for climate action and circular economy investments were presented and discussed with the attendees.

The session also referred to as responsible investment drivers. The panelists highlighted the growing interest in responsible investment demonstrated by Schroeder’s Institutional Investor Study 2018 – Institutional perspectives on sustainable investing.

In the same way, the key trends driving responsible investment were presented:

  1. The Performance Perception: ESG analysis and corporate financial performance studies show ESG enhances investments.
  2. The Rise of Millennials: Demand for ESG assets is only going to increase over time as assets are transferred from older generations to millennials.
  3. The Global Regulatory Agenda: Industry-driven, voluntarily driven and government-driven policy and regulation support growth in ESG and sustainable investment.

The positive impact of emerging technologies on the future of equity-ESG integration was explained. First, it was argued that innovations in big data will lead to higher operational efficiency. This is because big data technologies will reduce the time required to collect data freeing investment analysts to create more actionable insights.

In the same way, was argued that the analysis of investment data combined with ESG metrics allows investors to get a much richer picture of any given company.

Finally, the challenges of implementing ESG strategies were addressed.

It was first mentioned that ESG can be argued to be a risk reduction strategy whose primary goal is not to help solve world key challenges but to reduce specific and market risk.

Second, those Fund buyers reduce the risk of their portfolio when macro data is weak. Thus, investors might turn to ESG investments to de-risk portfolios when there are macroeconomic backdrops.

Third, there might be significant differences in ESG Portfolio Analytics, controversy ratings, and company analytics. This is due to differences in data collection, analysis, and reporting. Furthermore, funds often struggle with clarity around standards and terminology of ESG investments.

Destination of technology investment flows from large investment funds and hedge funds: financial and socially responsible investment criteria

This event is one of the series of preparatory activities working up to the Congress on “AI, Big Data and the Digital Economy: Challenges and Opportunities”  , that Fide is organizing at the Jesus College, in Oxford the next 16, 17 and 18 September of 2019.

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