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Jun 30, 2020

Impact investors favor climate impact, study finds

Investors tracking with UN SDGs most likely to have invested in climate action

Climate action has received the biggest portion of public equity impact investment of all the Sustainable Development Goals (SDGs), at least in part due to the improvements issuers are making in disclosing climate-change risk. 

Of all the SDGs in the public equity space, climate action has raised the most capital, with institutional investors injecting €34 bn ($38 bn) by 2019, according to the 2020 Global Impact Platform Fund Report released by Phenix Capital.

The report tracks the allocation of €245 bn by 1,306 institutional impact funds between 1983 and 2019, with an average fund size of €170 mn. 

The fund report explores the extent of capital allocated to all United Nations 2030 SDGs adopted by the member states in 2015. The UN initiative sets out 169 targets within 17 goals to achieve global environmental and social prosperity by 2030. 

Improved reporting

The interest in climate action has been supported by increased transparency and financial disclosure, enabling investors and fund managers to better assess risk triggered by climate change. 

‘A growing portion of available data and better reporting on themes including climate action are driving public equity impact funds’, says Trevor David, associate director at Sustainalytics. 

A growing number of institutional investors have recently come together to encourage issuers to adopt a harmonized climate-reporting scheme. In February IR Magazine reported that the Task Force on Climate-related Financial Disclosures (TCFD) had surpassed 1,000 supporters

The TCFD reporting regime was set up by the Financial Stability Board in 2015 and is chaired by Bloomberg founder Michael Bloomberg. It encourages issuers to report on four key areas: governance, strategy, risk management & metrics and targets.

Potential for growth

Clean and affordable energy (SDG 7) and industry, innovation and infrastructure (SDG 9) are the second and third-most popular SDGs in the public equity investing space. 

Clean and affordable energy had received €22 bn through public equity investment funds by 2019, accounting for 22 percent among all asset classes. Altogether, €99 bn has been committed toward this goal, in 467 funds across 210 managers, according to the report. Industry, innovation and infrastructure had received $10 bn in public equity funding by last year.

Experts see a potential for growth in public equity impact investments targeting sustainable development goals like climate action, renewable energy and innovation and infrastructure. 

‘I think the value of delivering impact through private equity securities will remain an important element of the impact investing space,’ says David. ‘But public equities are becoming an important component of the impact-investing story.’