KEY TRENDS AS IMPACT INVESTMENT ADVANCES.

Speaking at the British Venture Capital and Private Equity Association (BVCA) Impact Investment Forum, Daniela Barone Soares, CEO, Snowball shared the trends she sees for the impact investment market in the next few years:

• Just 1% of global AUM today is invested in impact, but it will become mainstream as LPs realise the limitations of ESG as a tool for doing less harm. Demand from them is high for impact investing as a tool to generate premium financial returns and address global need.
• There will be increased pressure to demonstrate businesses' value to society. This means the net effect of products and services in the real world, rather than just how well a business is run or its products consumed.
• The industry will coalesce around fewer credible reporting frameworks and that will enable more capital to flow into impact, as investors are better able to compare across opportunities and asset classes.
• Impact-washing is part of the same mindset which brings about disinformation -improvement of impact data, accountability and transparency will support managers and investors alike.
• Better regulation is needed to level the playing field for impact investors who are doing it well. Regulation needs to be clear and easy to understand and implement.
• The market will continue to demand diversity, equity and inclusion standards from managers and investees, as the financial industry should better reflect the diversity of its investor groups.

TEXT OF BVCA IMPACT INVESTMENT FORUM KEYNOTE SPEECH.

Fresh out of business school and working in private equity, I first became a member of the BVCA in 1997. I felt private equity at its best really allowed me to understand how a business works, and how to help it thrive.

A lot has happened since then, and one the most significant shifts I’ve seen during my 30-year career in private capital is the pace of change happening around impact investment.

Many investors ask us: what is the difference between ESG and impact investment? I want to make this distinction before I go on, because if you want to live on a habitable, sustainable and equitable planet, ESG will not get us there.

ESG investing looks at the social and environmental challenges in the world around us only in terms of financial risk to the bottom line. A fossil fuel company might introduce a new policy to improve its diversity and in doing so score highly as a top ESG performer, because the impact of its actual planet-harming product is not taken into account.

Impact investment strategies instead, by design, set out to create positive social or environmental changes through the products and services provided. Like a social enterprise IT consultancy whose service is to connect clients with neurodiverse talent. They’re intentional about the impact they want to create, ideally the impact is additional to what would have happened anyway, and the delivery is measurable. Impact investors use ESG criteria but to us they are just "hygiene factors"; we then go far further, and get to work setting a strategy to achieve the social and environmental outcomes we want the investment to deliver.

So, back to the market. I see more and more demand from investors for positive impact because the investment case is clear: why wouldn’t you allocate capital into mission-driven, focused businesses that solve the biggest social and environmental issues we face, and generate risk-adjusted returns?

And yet, while the market is advancing, impact investment (distinct from ESG) remains a meagre 1% of global assets under management. I recently spoke at the launch of the first report sizing the market for the UK where EY and The Impact Investing Institute shared their estimate of £58 billion. We’ve had the Global Impact Investing Network’s survey for several years, and the most recent estimate they shared was $715 billion globally.

My experience talking to investors is that they want the flow of capital into impact to accelerate, while wider society and our planet needs it. There have been barriers to connecting private capital with positive impact (not least, the struggle I’ve described for investors and members of the public to distinguish this from ESG) and Snowball addresses those barriers: we’re a scalable solution proving it is possible to create market returns and measurable positive impact.

The companies which impact investors find and back are the future. But as investors and fund managers, we need to take a more systemic view of the part we play. The financial industry, perhaps through being one step removed from the products and services out there affecting the real world, has largely operated in a vacuum. It can’t any longer. We need to think as humans first, before we act as investors. There is no greater fiduciary duty than to invest in a way that will enable life – human life and natural life – to thrive as a result of our investment decisions. To do otherwise simply moves the cost into the future.

Inequality is the most pressing issue we face today – solving it is the most powerful solution for our climate emergency. We should be guided by decisions which account for the sustainability of all life, and then we can transition from an extractive to a regenerative economy. If we think “financial-returns-first” we will ultimately fail. Impact should be at par with risk and return.

Allocation of capital is key to the future of the world. We are working in one of the most powerful industries; one which can lead huge change. We must seize this opportunity. Bring humanity into finance. Be human. Every day and in every decision. What are you doing everyday with your money, your work, your energy?

For further information, please email laura.boyle@snowball.im

ABOUT SNOWBALL

We invest in businesses that bring innovation to solve for two interconnected themes social equity and environmental sustainability. We offer investors a well-diversified, low risk impact fund, which gives access to a broad range of impact investment opportunities across public and private markets.

Our investment strategy is to maximise positive social and environmental impact whilst targeting a long-term return to investors of c.6%-7% p.a. net of all fees with relatively low annual volatility. 

1. High diversification

• Invest in some of the best impact funds globally, which improves returns.
• Lower the risks, because we are not dependent on one key manager, or one sector, or one strategy.
• Help investors access over 400 companies which they may be unable to access individually – and without administrative and monitoring burden that goes along with a portfolio this diverse.

2. Leading impact strategy and measurement

• We analyse impact on three levels: the enterprise impact (the business on the ground producing the service or product), the fund manager impact (how the manager is supporting, monitoring and managing the impact risk) and our own impact. We use the IMP framework, which is becoming the industry norm and we score both the enterprise and the fund manager impacts against best practice in various categories to determine the impact intensity of the portfolio. We published – available.
• Practically, we collect, analyse and use impact data not only on dd and reporting – but to actively make decisions, engage and monitor the portfolio throughout the life of the investment.​

3. Best practice governance and culture

• We see ourselves and the fund management industry as a service we provide to investors – most of which are in pension funds. So, we believe we should be paid fairly but not excessively. In practice it means that once we cover our costs, our fees will progressively reduce as we scale – so the benefit of scale is passed onto investors.
• We are a B Corporation and are a top 5% B Corporations globally for governance.

SOCIAL EQUITY – spotlight solution

Auticon, part of the Ananda portfolio. Auticon is a company that employs over 200 people on the autistic spectrum (most of whom would not otherwise have access to the job market) into high value and highly detailed IT services, bringing cognitive diversity to the workforce.

ENVIRONMENTAL SUSTAINABILITY – spotlight innovation

Shark Solutions, which is part of the Circularity portfolio. Shark is a product from waste: it gives a new life to PVB which is the plastic film embedded in laminated glass (for example in windshields and architectural glass). It has developed technology to separate the PVB from the glass and use it in other applications, such as paint and carpet backing, showing what we can achieve with a circular economy.