3 min read 23 Apr 21
Summary: By using our influence to persuade companies to improve their disclosures and targets, impact investors can aspire to shape better outcomes for people and the planet.
The purpose of impact investing is ultimately to exact positive change. By putting our money to work in a purposeful way, investing in companies that are committed to solving the world’s challenges, we can aim to have a meaningful impact.
As active fund managers, we can also target a positive impact through how we invest, as well as what we invest in. We can do this by being a good influence.
In the same way that impact investing is about solving challenges, company engagement is about using our voice to help shape better outcomes.
The purpose of engagement is multifaceted. One aspect is to enhance our understanding of the impacts – positive and negative – that each company has through its activities. Dialogue not only allows us to gain new knowledge and insights, but also allows us to push companies to enhance what they disclose publicly.
As well as encouraging greater transparency, we might also try to persuade the companies we invest in to adopt more specific or more ambitious impact-related targets.
In 2020, a key concern for us was how our investee companies were being affected by the COVID-19 pandemic, and what they were doing to address its negative ramifications. To learn how management teams were pursuing their positive impact goals, we sent a letter to the leadership of each company that one of our equity impact funds was invested in at the time.
We firstly asked for an update on efforts, activities or initiatives undertaken to help combat the impact of the crisis, through supporting the company’s community of stakeholders, and any steps that were directly aligned with the company’s core purpose. Secondly, we asked how the company balanced the interests and well-being of its workforce with issues such as executive compensation and shareholder returns.
We received responses from most companies, demonstrating overwhelming support for those affected by the pandemic. Overall, we were pleased to observe a strong alignment between the actions taken by companies and their mission statements.
I believe engagement is especially important when it comes to more sensitive topics.
As impact investors, we need to recognise any negative effects from a company’s activities. Even sectors that generate clear environmental benefits, such as renewable energy, can cause biodiversity damage, for instance. Hydro power systems can interfere with freshwater ecosystems, due to the impact of dams on natural river flow, and wind farms can affect bird life.
For us, the key is that a company’s net impact on society is positive overall. Where there are negative impacts, I feel we have a responsibility as impact investors to help companies mitigate them and to push for change where it is needed.
There can also be sector-specific considerations. Given the nature of the healthcare sector, for instance, we have a keen focus on whether companies provide affordable access to their products or services.
Being able to demonstrate that a company is making its products accessible to lower earners, or those not traditionally served by mainstream healthcare systems, is important. This is why access to medicine formed part of M&G’s listed equity impact team’s engagement with one investee company in 2020.
ALK-Abelló is a global leader in allergy immunotherapy, and we believe it delivers a clear positive impact through supporting allergy and asthma sufferers. ALK is a relatively small company, though, and we believed the company could improve aspects of its sustainability targets and disclosures.
One of the topics we discussed with ALK was the actions being taken to improve affordability to lower-income patients. As part of our engagement, we highlighted the new Access to Medicine Index methodology, which ALK is considering. We have since received an encouraging update about the measures taken to support the company’s range of stakeholders.
Effective engagement can therefore lead to better outcomes, for companies and wider society. While it can never guarantee positive results, engagement demonstrates our effort and energy to drive positive change. I therefore believe it can help maximise our impact as investors.
The views expressed in this document should not be taken as a recommendation, advice or forecast.
When you're deciding how to invest, it's important to remember that the value of investments goes up and down. So how much your investments are worth will fluctuate over time, and you may get back less than the original amount you invested.
The views expressed here should not be taken as a recommendation, advice or forecast.
The value and income from any fund's assets will go down as well as up. This will cause the value of your investment to fall as well as rise. There is no guarantee that any fund will achieve its objective and you may get back less than you originally invested.