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Impact investment: ESG practices increase risk-adjusted returns in the long-term



A new report by the World Economic Forum has outlined the possibilities and strengths of impact investment, suggesting that integrating environmental, social and corporate governance (ESG) in the investment process reduces risks on long-term returns.

Impact investing seeks not only to achieve stable financial returns but also to have a positive impact on society and the environment.

The report, From the Margins to the Mainstream: Assessment of the Impact Investment Sector and Opportunities to Engage Mainstream Investors, has collected expertise and advice from funds and firms the specialise in impact investment, providing guidance to investors.

Abigail Noble, associate director and head of Impact Investing Initiatives at the World Economic Forum, said, “For investors who are already active, moving impact investing from a small part of their portfolio to a full-fledged strategy requires operational and practical know-how.

“For new entrants in the field, moving impact investing from being just a compelling idea to making practical investments requires a knowledge of how to get started in this nascent and potentially rewarding, sector.”

Some of the suggestions include the integration of ESG practices to reduce risks on long-term returns, advice on how to evaluate impact investment funds, frameworks for institutional investors to incorporate impact investment and suggestions on fund governance for impact investing fund managers.

Sir Ronald Cohen, chair of the Social Impact Investment Task Force established by the G8, commented, “We are on the threshold of major change. Investors are starting to see the benefits of allocating capital to impact investments while old and new intermediaries are bringing innovative instruments into the market.

“This publication draws on experience and knowledge to showcase best practice and to provide insights for investors on the place of impact investment in their portfolios.

Further reading:

Qatar sovereign wealth fund considers impact investment

Sir Ronald Cohen: measuring of social investment outcomes a ‘breakthrough’

Cameron: ‘social investment can be a great force for social change on the planet’

Investing in the future: smart investment trends

Report indicates US impact investment potential


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