Deep dive into impact investing

  • Insights

As an impact investor, we set out deliberately and intentionally to have a positive social and environmental impact through our investments. We are committed to regularly measuring and reporting this performance. In so doing, we fully comply with the disclosure requirements defined under Article 9 of the EU Sustainable Finance Disclosure and the LuxFlag Environmental label.

If we’re going to have the biggest positive impact on the environment, climate and poverty, then we must lift our heads above the horizon. Be bold and ambitious.

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Measuring impact is neither an art, nor a science, and requires a carefully considered blend of qualitative and quantitative metrics to judge the ‘additionality’ of an investment; the extent to which it has brought about change – both positive and negative – which would not otherwise have occurred. In line with SFDR, an investment must equally demonstrate that it has a positive impact, and that it does no harm.

By its very definition therefore, impact must necessarily involve the injection of new money into the economy. In this important respect, the development of real assets is crucially different to the trading of financial assets. The former provides new funds, creates real jobs and builds new infrastructure. The latter merely changes the ownership of a share certificate; with no new money for investment and no effect on employment, economic growth or wider social and environmental outcomes.

We believe strongly that the key to delivering impact is creating jobs. Employment brings income, security, responsibility and dignity. It brings family stability and fosters respect for institutions and justice.

Asia's population is set to increase by 650 million people over the next 30 years.

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The development of infrastructure is both capital and labour-intensive. It requires a lot of money and creates a lot of jobs, multiplied well beyond the initial project investment.

These are not the dirty, polluting jobs of yesterday: mining coal or burning precious natural resources in heavy industry. They are jobs in the new, green economy: producing sustainable, renewable energy to bring clean, locally-generated electricity to power business, light schools and transform life at home.

The availability of reliable, clean electricity is changing lives in the fastest growing countries of Asia, where our efforts at serious climate-change mitigation must now be focused. We have seen the growth of new industries such as Business Process Outsourcing (BPO) which creates safe places of work for women; helping reduce traditional gender imbalance and bringing equality of opportunity to millions.

Asia’s population is set to increase by 650 million people over the next 30 years. That’s equivalent to adding 8 Germany’s or 10 France’s. Indeed, it’s 50% bigger than all the countries which today make up the EU27. It is here that the dial on climate change can most effectively be moved.

We cannot state often enough this fundamental difference between real assets and financial assets. Indeed, investors risk being seriously misled by the aggregators and promoters of purely financial assets who sell so-called ‘sustainable’ investment products based on questionable claims about their social and environmental effects.

As an example – our investment in biomass plants in the Philippines has delivered a range of positive outcomes which result directly from our investment, including:

  1. Increase in farm incomes as we pay ‘cash for trash’
  2. Waste removal from the fields, reducing rodent infestation
  3. Improved soil quality through mechanised collection
  4. Better air quality as ‘field burning’ is avoided
  5. Generation of locally-produced green, sustainable electricity
  6. Self-sufficiency and economic security which come from reduced dependence on imported fuel

Impact investing is not the same as investing through an Environmental, Social and Governance (ESG) lens, which has recently become so fashionable and attracted substantial net inflows from investors. We believe that ESG merely codifies a set of behaviours which every responsible individual or company should already be living by. It may provide increasingly elaborate checklists to demonstrate commitment vii or compliance but it will be neither the catalyst for fundamental change nor the standard against which that change can be measured.

Responsible investment does not mean removing paper towels from the company washroom whilst buying shares in automobile manufacturers or fossil-fuel producers.

If we’re going to have the biggest positive impact on the environment, climate and poverty, then we must lift our heads above the horizon. Be bold and ambitious. For sure, we can play a part with small changes in our everyday European lives. But the big opportunity and the greatest rewards for all will come from investing where our money makes a difference to tens or hundreds of millions of people – sustainable infrastructure investment to help Asia and to make the whole world a better place. That is what we call impact.

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This research document is issued by ThomasLloyd Global Asset Management GmbH, Hanauer Landstraße 291b, 60314 Frankfurt am Main. The information contained herein is proprietary and is intended only for use by the recipient and may not be reproduced, distributed or used for any other purposes. This document includes future-oriented statements, which are based on current estimates, forecasts, and expectations. These statements include risks and uncertainties, since many factors affect the estimates, forecasts, and expectations. Actual results and development may therefore vary from the current assumptions. Past performance does not guarantee and is not indicative of future results. There can be no assurances that the countries, the markets, or the sectors will perform as expected. The information contained herein has been compiled to the best of our knowledge, and is subject to change without notice. No liability is accepted for the accuracy of the details at any other time. The information contained herein is not complete and does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. Clients should consider whether any conclusion in our research is suitable for their particular circumstances and, if appropriate, seek professional advice, including tax advice. This document is not intended to be, nor should it be construed or used as, an offer to sell or to solicit any offer to invest in any investment vehicle. In no case should these materials be considered as a recommendation to buy respectively, sell securities, futures contracts nor any other form of financial instrument. By receipt of this docu- ment, you declare your agreement with the preceding terms.

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