We are on the verge of a climate crisis. Businesses are starting to adopt practises to reduce emissions but it’s not happening nearly quickly enough.
Many companies passing themselves of as being green are just offsetting as opposed to making deep changes to their models to avoid
Whether it’s driven by changes in government regulations or the economic opportunity for private entities, businesses will ultimately be forced to ensure their businesses are making a positive environmental impact.
Being carbon neutral simply will not be enough.
Companies adhering to any new regulations or generating significant profits by making an impact will naturally become more attractive to investors.
For example, if fossil fuel companies do not today start thinking about broad diversification, it is likely they will become obsolete within the next decade.
Firstly, because peak oil is very much on the horizon, but most importantly, investors and asset managers will shun fossil fuel companies that aren’t making significant steps to making a positive impact.
Eventually this will mean they’ll find it difficult to secure capital.
This will be the case, not just for fossil fuel companies, but for all companies that aren’t taking an active approach to making a positive impact.
Impact Investing growth
Impact Investing is not just limited to the current climate crisis and has several key themes providing a step higher from the ESG attributes currently sought after by investors.
Financial services companies will have ensure high levels of diversity throughout their organisations, supermarkets will no longer be able to support any unsustainable supply chains, not just cherry pick a few sustainable products for promotion to divert attention from the rest of their practises.
You also have to consider when investors are presented with two equally profitable pharmaceutical companies, which one will they allocate funds to if one is establishing a generics business in sub-Sahara Africa and the other is only focused on developed markets.
As the investment industry begins to actively seek out companies providing a measurable impact, it means that everyone with a pension, by default, becomes an impact investor.
There is mounting pressure among asset managers, including pension funds, to ensure their investment selections possess ESG attributes. This is likely to evolve into pressure to select investments that are producing a measurable positive impact as time goes by.