The GIST Impact and Maanch Roundtable moderated by Armin Peter and kindly hosted by KPMG held on September 5, 2024; brought together leaders from the finance and sustainability sectors to discuss the evolving landscape of impact investing and engagement. The discussion touched on the transition from a traditional GDP-driven model to an impact economy. The impact economy values environmental and social impacts alongside financial returns. The roundtable emphasised that this is not a future aspiration but a present necessity.

The Impact Economy Gap: From Commitment to Action

The roundtable identified a crucial “impact gap” between pledges and implementation. Bridging this gap demands aligning government policies, corporate strategies, and investor behaviour. The discussion highlighted the importance of integrating impact across all business operations, not just climate-focused initiatives. The development of standardised metrics and reporting frameworks is also crucial for measuring and comparing impact performance.

The Role of Data and Technology in the Impact Economy

Data and technology are crucial in operationalising the impact economy. Companies like GIST Impact are developing tools to measure and report on sustainability from an impact perspective, enabling informed decision-making across the natural, human, social and financial domains. And companies like Maanch are enabling the investment ecosystem to track the process, dialogue and progress and how responsible investing is enabling a fair and prosperous future.  The roundtable emphasised that we’re moving beyond disclosure for disclosure’s sake. The focus now lies in collecting data to measure risk, identify opportunities, and create value. Digital tools can help:

• Identify and Assess Risks and Opportunities: Data and technology can help investors and corporations to identify and assess the risks and opportunities associated with sustainability issues. This information can be used to inform investment decisions, risk management strategies, and product development.
• Measure and Report on Impact: Data and technology can help investors and corporations to measure and report on the impact of their activities. This information can be used to demonstrate progress towards sustainability goals, attract impact-focused investors, and build trust with stakeholders.
• Drive Innovation and Collaboration: Data and technology can facilitate innovation and collaboration in the development of sustainable solutions. By sharing data and insights, investors, corporations, and other stakeholders can work together to address environmental and social challenges.

Engagement as a Driving Force

Engagement is a critical tool for driving impact, particularly in public markets in the economy. Investors are increasingly using engagement to encourage sustainable practices and positive social and environmental outcomes. The UK Stewardship Code, for instance, has seen a significant rise in signatories, reflecting this growing emphasis on engagement.

The Need for a Common Language

The financial and sustainability sectors need to develop a common language around impact. This will facilitate communication, collaboration, and the development of standardised metrics and reporting frameworks. The roundtable highlighted the diverse interpretations of “impact,” underscoring the need for clarity and alignment. It is heartening to see, however, that various standard setters have made tangible progress to align on the meaning of impact and to articulate how it can be calculated in a standardised, science-based way.

Key Takeaways for Leading the Transition

• Integrate impact into transition plans: Companies must go beyond climate-focused plans and incorporate new, science-based perspectives on sustainability risks and opportunities.
• Develop standardised metrics: The industry needs to establish clear and consistent metrics for measuring and reporting impact.
• Enhance investor engagement: Investors should actively engage with companies to drive positive change.
• Promote education and awareness: It is essential to educate investors, corporations, and the public about the inextricable link between long-term financial performance and wider sustainability issues such as climate change, human health, and social disruption.

Final Thoughts

• After the years of implementation demands its now shifting towards commercialisation & opportunity focus!
• The increased dynamics of ‘Top Down’ (regulation) and ‘Bottom Up’ (doing the right thing) are causing ‘the system’ to heat up (for change)
• With an operation model in place we now will shift the ‘So what’ to ‘what’s next’
• Regulators increasingly will ask financial markets participants to demonstrate their shift in behaviour (UK Stewardship code is only one example)
• A crucial review of business and governance models is underway which will further lead to a change in language and behavioural understanding
• Resilience is the lesson learned from the war and the real time climate impacts
• A shift in the definition of fiduciary duty is starting to materialise (new investment narratives and change in existing one for investors with a long term horizon like SWF & Pension Funds) as impact and externalities find their way into the discussion and clients ask what ‘real world impact’ their investments and decision have (note: demographics & generation dynamics)
• Markets will therefore start addressing market failures in the months and years to come
• Helped by the increased ‘review and feedback loop’ approach (agility) of policy (SFDR review as one example) that provides risks and opportunities (question of regulatory certainty that is required for businesses to plan)
• Key for communication with the ‘man/woman on the street’ – boil it down to a simple language (which in the first place requires an agreement on basics and principles)
• As we shift towards an economic consideration of the scientific dilemma of climate & biodiversity the discussion on cost vs decarbonisation will increase the discussion on inflation and justification at point of (traditional) economic challenges
• As global transition dynamics (economically and sustainability) are different by region and operational readiness increases, policy will shift from ask to enforcement & intervention, leading to increased ‘regulatory arbitrage’ (market trading opportunity)
• The bridging between long term impact and short term risk in the context of financial return will remain the key challenge to address as Harry Markowitz 1952 model of Modern Portfolio Theory (MPT) will be rewritten as we speak

Conclusion

By embracing impact measurement and engagement, we can lead the transition to a more sustainable and equitable future. It’s time to move beyond rhetoric and take concrete action. The future of finance and sustainability depends on it.

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