Arnerich Massena published a new white paper detailing the fast-moving and interrelated topics of environmental, social and governance (ESG) investing and socially responsible investing (SRI), titled “Impact Investing: Why, What, How?”
The paper concludes that impact investing is not philanthropy, “nor is it about sacrificing return in exchange for a societal good, nor even about prioritizing social and environmental impact over generating wealth.”
In fact, according to the paper, there is a clear economic case to make for supporting and encouraging sustainability in business.
“Businesses that incorporate sustainable practices are stronger and better prepared for the future, as well as more attractive to consumers,” the paper says. “As wealth transfers to the next generation, studies show that Millennials have a deep interest in making an impact with their investments. The market will show the influence of this shift.”
Arnerich Massena’s paper says that developed countries’ populations are aging, while still-developing nations are seeing rapid growth in their younger, working-age demographics. As the population expands globally, human needs are naturally going to increase, the paper says, creating business opportunities providing and distributing necessities like water, food and healthcare. At the same time, technologies to improve efficiency, quality, and infrastructure, and to minimize supply chain risk, are likely to open up new markets and investment opportunities.
“Energy is another fundamental necessity that will continue to be a focus in the future, as resource scarcity becomes a greater problem,” the paper says. “Renewable energy technologies and resource efficiency will be areas that are likely to see significant attention and growth, as we speed toward a future less dependent on oil but that can still meet the needs of an expanding population.”
According to Arnerich Massena, the unintended consequences of demographic shifts include pollution, overcrowding, poverty, illness, and resource scarcity. All of these factors present strong reasons in themselves to consider ESG and SRI factors while making long-term investments.
“It will become increasingly essential to address these issues,” researchers say. “Now is the time to begin putting capital to work to help innovators develop the creative solutions of tomorrow.”
The paper says responsible practices and policies have been shown to serve corporations better in the long run, strengthening their ability to meet the needs of their customers in a sustainable manner.
“Studies are beginning to show that being aligned with environmental, social, and governance factors may also contribute to a strong bottom line because it reflects smart decisions and a forward-looking approach,” the paper says.
The paper discusses the emergence of “thematic investing” as “the next level up for investors who are interested in reaping the potential returns impact investing offers.” According to Arnerich Massena, thematic investing is an approach that looks strategically at future trends to identify areas and themes of potential growth and impact, focusing investment efforts in those areas.
“A thematic approach is a way for investors to actively participate in opportunities arising in areas of impact,” the paper says. “Investing thematically requires a strategic approach, identifying areas of specific opportunity and then seeking out vehicles that are finding unique and innovative ways to invest in those opportunities. Investors can build an equity portfolio with a thematic approach, or select a portion of their equity portfolio to invest thematically.”
Today, the paper says alternative investment vehicles and private equity may be the best avenue for thematic investors, “allowing one to focus in very specifically and find companies that represent best thinking in broad thematic areas.”