Conference Presentation, Panel
The Impact Investing Continuum: Alternatives for Engagement
Milken InstituteChristopher Lee, David Bohigian, John Buley, Ann-Marie Griffith, Jim Sorenson, John Streur
- The impact investing sector has grown by approximately 2.5 times in asset center management over the last five years and is currently characterized as "burgeoning," "tinkering," and "reinventing" its infrastructure.
- Large asset owners, including government pension funds in Japan and Europe, are actively preparing and beginning to deploy capital to generate better constituent outcomes, with European managers currently setting higher standards than the U.S. side, which may face a 5 to 10-year delay in catching up.
- Calvert reports that approximately 50% of engagement with company management results in practice changes without aggressive postures, a significant improvement over ten years ago when the efficacy of such engagement was questionable, with most shareholder resolutions now leading to negotiated successful outcomes.
- Significant capital mobilization is expected through the potential passing of the BUILD Act to broaden OPIC's authority and Opportunity Zone legislation offering long-term capital gains deferment, aiming to catalyze trillions for development goals.
- To de-risk projects and crowd in other funding, philanthropy is anticipated to take concessionary returns in the capital stack, while OPIC expects to continue working with partners on blended finance solutions and see more U.S. government support for sovereigns accessing public bond markets via wraps and co-signing loans within the current year.
- Industry participants note that traditional private equity or venture capital models with four-year investment and three-year exit periods will be difficult to use in ten years to solve social problems, prompting a goal for standard bond and credit agreement documents to be readily available within the next 20 years.
- The field faces risks regarding the difficulty of agreeing on metrics when combining institutions with diverse environmental, social, and agricultural data demands, as well as a potential "global competition of ideas" contrasting Western approaches with other investment models.
- Generational shifts are driving change, with Millennials pushing for social change now and comprising 47 to 50% of staff in large companies, creating an anticipated "unlimited supply of social problems" to address that supports demand from the next generation, women, and baby boomers.
- Academic institutions are creating degree programs and learning tracks to train a future "army of analysts," while professional designations like the CFA are expected to introduce exam segments on social and environmental outcomes to meet the demand for trained personnel.
- Regulatory reform is needed for U.S. fiduciary laws to create clarity for longer-term stewardship, and markets are expected to "catch up" with corporations and governments that are currently ahead in understanding impact, eventually making sustainable skill sets "par for the course."
- Long-term viability relies on solving valuation and governance issues to ensure asset liquidity, with the sector aiming to remain distinct enough to avoid being "too easy" to the point of losing its identity, while viewing impact as an established, enduring "new normal."