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Listed equity strategies can be harnessed to intentionally drive positive impacts

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Summary

The "traditionalist" view holds that investing in listed equities results in minimal impact because impact investing only exists where "an investor seeks to produce social or environmental outcomes that would not occur but for their investment"(Definition by Global Impact Investing Network, GIIN). In contrast, Globalance maintains that investing should not be reserved to primary markets. We share the view of a holistic approach with the following principles for listed companies: First, investment intent. Second, investor contribution. Third, substantiation of impact.

"Requiring additionality as a defining criterion… inherently marginalizes the impact investment market." Amit Bouri, CEO, Global Impact Investing Network (GIIN)

What is it about

The "traditionalist" view holds that investing in listed equities results in minimal impact because impact investing only exists where "an investor seeks to produce social or environmental outcomes that would not occur but for their investment"(Definition by Global Impact Investing Network, GIIN). In contrast, Globalance maintains that impact investing should not be reserved to primary markets. We share the view of a holistic impact approach with the following principles for listed companies: First, investment intent. Second, investor contribution. Third, substantiation of impact.

Why is this important

The traditionalist view has gained ground in recent years not least due to academic work which, in absence of perceived quantitative evidence or proof and/or causality, has put in question the notion of impact of secondary investments entirely. The London-based wealth management firm WHEB has put forward an important rebuttal which reflects Globalance's own views perfectly. WHEB summarizes its framing in the report Impact Investing in Listed Equities - the WHEB Approach.

The Globalance View

Goldman Sachs economists have recently made startling observations: In the past decade, the cost to finance fossil versus renewable energy projects have seen a significant divergence: The average capital costs of 8-10 per cent that were still to be calculated for investment projects in the oil and gas sector ten years ago have risen to around 20 per cent, while in the same period the costs for renewable energy projects have fallen to 3-5 percent. This means: the capital markets are re-directing capital and sending important price signals.

This is evidence of one important "transmission" leading to impacts by investors. Asset managers and owners function as a part of a very large and that system, including the importance of secondary markets, is the route to mobilizing impactful capital at scale. As WHEB states:"Impact investors serve at the vanguard of a movement within this system that is pushing sustainability to the top of the business agenda. It is through the system as a whole that real scalable impact can be delivered."

Through its direct and indirect engagment activities Globalance actively advocates consistent future-fit business models and strategies with those companies in which Globalance's clients invest in. This alignment with positive impacts is central to scaling many of the innovations and solutions needed to address the most pressing global challenges.

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