Institutional investors are crucial to the growth of the impact investing sector, which aims to foster positive social and environmental change. But experts warn those goals aren’t enough to attract major super funds, which prioritise investment returns.
UniSuper head of ESG Lou Capparelli said the fund had appointed two impact investment managers within its three sustainable investment options, which now hold around $20 billion in assets, but that the decision was based on purely financial grounds.
“It is important to understand that because of our member first, best financial interest duty, we can’t give either of these managers some sort of free hit or concession for the fact that they’re doing good,” Capparelli said on a panel at the Impact Investment Summit Asia Pacific.
“It’s wonderful that they’re doing good. It’s a noble objective, but they have to make us money first – and that is a critical aspect of what we do.”
Impact investing aims to generate an appropriate investment return as well as positive social or environmental changes, placing it somewhere between philanthropy and pure investing, according to asset consultant Frontier Advisors. The size of the sector has been estimated at $US1.571 trillion according to the Global Impact Investing Network (GIIN).
Capparelli said case studies from UniSuper’s two impact fund managers about their positive environmental or social impact were positive, but that the fund remained cautious.
“It’s always wonderful when you get that mix of great investment returns and some positive impact, but I would also say that on measuring impact, that’s something that we do shy away from.
“That is not something that we want to stick our head above the parapet on, particularly in this world of greenwashing. In this case you could call it ‘impact washing’.”
The impact investing sector has been estimated at $US1.571 trillion according to the Global Impact Investing Network (GIIN), although estimates can vary widely depending on which assets are included.
JANA Investment Advisers head of sustainability Rachel Halpern said the impact investing sector needed institutional capital but that asset owners were not yet making significant allocations.
“One of the reasons is that when impact investors tend to speak to institutional capital, they may come with a bias to that ‘impact first’ conversation rather than ‘financial first’,” she said on a separate panel session.
The sector remains in its infancy in Australia given the extra work required to find impact investments that align with the organisation’s values and concerns about breaching the sole purpose test.
Former Australian Retirement Trust director Michael Traill AM recently led the government’s Social Impact Investing Taskforce which made several recommendations to increase support for the sector. He said institutional investors had been slow to move but were increasingly looking at impact investing.
“They can be bureaucratic, but in the last three to five years there’s a better understanding,” he said.
Rest Super is one of the sector’s strongest proponents, targeting a 1 per cent allocation of total funds under management to impact-generating investments by 2026.
The fund, inspired by the importance of achieving net zero by 2050 for its predominately young membership, now has $730 million committed across a wide range of impact investing sectors.
Rest Super head of responsible investment and sustainability Leilani Weier said manager research was critical.
“Impact takes longer than an investment return,” she said. “Some of the conversations we’ve started having with our managers is that that’s okay. Getting outcomes in three to five years is ok as long as you can show us progress.”
Some other funds have made sporadic impact investments. In 2019 HESTA invested $20 million in a partnership with housing organisation Nightingale Housing and Social Ventures Australia (SVA) to build the 185-apartment Nightingale Village. Twenty per cent of the apartments were set aside for key contribution workers such as nurses, which make up the majority of HESTA’s members.
