Spotlight on environmental challenges: Targeting solutions for the planet through impact investing

by | May 7, 2021

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Targeting measurable impact

By investing in listed equities to deliver a positive impact, alongside the pursuit of financial returns, we can invest in companies that offer solutions to the world’s most pressing challenges. To identify impactful stocks, fund managers may look to gauge the extent to which companies explicitly aim to address societal and environmental issues. Their impact must be intentional, not accidental.

Impact investors can look to gauge the positive impact that a company delivers against the SDGs. In the case of those providing environmental solutions, these could be:

  • Goal 6 – ensuring the availability and sustainable management of water and sanitation for all
  • Goal 7 – ensuring access to affordable, reliable, sustainable and modern energy for all
  • Goal 9 – building resilient infrastructure, promoting inclusive and sustainable industrialisation and fostering innovation
  • Goal 11 – making cities and human settlements inclusive, safe, resilient and sustainable.

We can map a company’s activities to a primary SDG and quantify its contribution towards achieving it. There also are likely to be secondary SDGs that a company delivers impact against, perhaps as a corollary of its principal activity.

By establishing key performance indicators that are pertinent to that company delivering an impact against that SDG – for instance, carbon emissions or water saved by using its products – we can assess whether we are making a positive contribution through our investment.

Investing in long-term solutions

While there remains a clear gulf between words and deeds, a growing number of companies recognise that they have a role to play in helping deliver progress against global sustainability challenges.

In a 2019 study by consultants PwC[6], nearly three-quarters (72%) of the 1,141 companies analysed publicly mentioned the SDGs in their reporting. However, only 25% did so in sections that discussed business strategy. Ever fewer, just 14%, stated specific targets relating to the SDGs.

Nonetheless, more chief executives are engaging with the Global Goals. As more companies wake up to the urgency of making real-world progress, and their responsibility to act – individually and collectively – towards the 2030 targets, companies that can enable that change stand to deliver an enormous positive impact. We believe they also stand to be very successful commercially in the coming years.

Conceivably, there are multi-billion-dollar opportunities for innovative companies that can successfully deliver viable products and services that help solve some of the world’s most pressing environmental challenges.

Where active investors can successfully identify these companies, they can therefore not only target a demonstrably positive impact for the planet and its people, but sustainable long-term returns for their underlying investors.

[6] PwC, “Creating a strategy for a better world.”

About Ben Constable-Maxwell

Ben Constable-Maxwell is Head of Sustainable and Impact Investing, leading M&G’s strategy on impact investing as well as covering sustainability issues such as climate change and the circular economy. He has been central to the development of ESG integration within M&G’s investment processes and has supported the development of ESG solutions for clients across asset classes. Ben plays an active industry role as a member of various sustainable and impact investment initiatives, interacting with companies, policymakers, NGOs and other investors. He is a Trustee at Firefly International youth organisation, which provides educational and mental health support for young people in conflict-affected areas in the Balkans and Middle East. Previous to joining M&G in 2003, Ben spent four years with the Equities team at Invesco Perpetual. Ben has an honours degree in Classics from the University of Newcastle-upon-Tyne.

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