Meet Theo Brouwers, Managing Director ACTIAM Impact Investing, a man on a mission. “In partnership with Cardano, we are well positioned to unburden institutional investors by helping reduce the complexity of impact investing.” The urgency of impact investing is greater than ever, he emphasises. “It’s time to move from ‘can’ to ‘should’.”
ACTIAM has been at the forefront of impact investing for many years. In 2007, ACTIAM was the first asset manager to launch a microfinancing fund which was suitable for institutional investors. Since then, ACTIAM has built up an impressive track record, with financial returns outperforming the benchmark year after year and non-financially by reaching over 3 million end-clients via its financial inclusion investment solutions. ACTIAM believes impact investing can play a critical role in bridging the financing gaps through unlocking private capital to tackle some of the most pressing challenges in the world today. And is doing so by offering impact investment solutions that make a positive and intentional contribution to one or more of the Sustainable Development Goals (SDGs) while operating within the planetary boundaries. Theo Brouwers: “Next to acting as a trusted impact investor, we’re also pleased to be able to provide guidance to our clients on how to draft a policy and implement this in their portfolios in the best suitable way. Further, through proactive knowledge sharing, collaboration, and active participation in network organisations, ACTIAM, now part of Cardano Group, also contributes to enhance the professionalisation of impact investing.”
Theo, what makes impact investing worthwhile?
Theo Brouwers: “What doesn’t make it worthwhile! If you look at the world around us, the financial sector has an important role and responsibility in contributing to solve today’s problems. Impact investing is an excellent way of doing this, and I am happy to concur with the definition of the Global Impact Investing Network (https://thegiin.org/impact-investing ): “Impact investments are investments made with the intention to generate positive, measurable social and environmental impact alongside a financial return.” Investors make investments that generate economic, social and environmental returns and whose proceeds benefit people, societies, organisations, and countries. This distinguishes it from traditional investments because impact investing is simultaneously active on three axes: intentionality, additionality, and measurability. Together, this should lead to a positive return. This can be an interesting proposition for institutional investors. Due to their fiduciary responsibility and societal pressure, they are seeking responsible investment opportunities across the globe. This demand is only increasing, and with it grows the urgency of impact investing.
Additionally, also from an investment perspective it makes perfect senses. We believe that by integrating the paradigm of the triple helix of risk-return-impact into the investment decision process, impact investing can contribute positively to asset diversification, lower overall volatility and reduce the effect of negative externalities. This could also increase future fitness, resilience and the prospects for long-term capital growth and the overall performance of pension funds and other forms of institutional assets.”
Can you share an ACTIAM project or fund in the impact investing space?
“We launched our first institutional funds in microfinancing as early as 2007 and 2008: ACTIAM Institutional Microfinance Fund I and II respectively. We now have four funds in this subsector, of which the first two funds were redeemed with excellent results, both in terms of financial and social returns. In the meantime, the impact investing industry has grown immensely and has professionalized. Today, we still have a fund dedicated to financial inclusion that is also open to new investments. Financial inclusion used to mean microfinance: small loans for entrepreneurs who want to start a business. Today, financial inclusion includes savings, pensions and mortgages. With financial inclusion, we strive to give everyone access to financial services. Her Majesty Queen Máxima, who is the United Nations Secretary-General’s Special Advocate for Inclusive Finance for Development (UNSGSA), is also strongly committed to this. She calls it a human right to have access to financial services, under the idea that no one should be left behind. Meanwhile, the impact investing sector has become highly professionalised. There are more than ten thousand microfinance projects worldwide. At the same time, the need for it is huge. For example: there are still more than 1.4 billion people worldwide who do not have a bank account. Financial inclusion wants to bridge this gap. Financial inclusion can be a powerful tool to create sustainable development when it is done in the right way, as it has been identified as an enabler for, and embedded into 7 of the 17 UN SDGs, which is acknowledged by the World Bank Group, who considers financial inclusion a key enabler to reduce extreme poverty and boost shared prosperity.”
What other pressing challenges is impact investing working to address?
“The energy sector and climate change are other areas where impact investing can make a huge difference. We as humans are all confronted with this. It leads to all sorts of big challenges globally that require capital and innovation—here impact investments can play a pivotal role. The war in Ukraine has put energy security at the top of the agenda. This in itself requires many investments, in which pension funds and other institutional investors can take their responsibility and play a crucial role in allocating their capital to investments with real world impact. In these cases, we as ACTIAM will go the extra mile to make a project or investment suitable for investment and support the client in finding suitable investment opportunities and share impact data.”
Talking about impact data, how do you measure impact?
“Impact measurement starts with defining an objective, goals and indicators to measure progress. For one of our funds, ACTIAM Financial Inclusion Fund, we have developed a ‘Theory of Change’ to unravel the impact pathways. The key indicators are measured with the help of the data collected through the annual social questionnaire that is sent to all portfolio companies. Data cleaning and analysis is done afterwards enabling us to draw conclusions and learnings. We are known for that, and we have lots of experience in this.”
What is the good news here for pension funds?
“The good news for the institutional sector is that this impact investing market has grown dramatically – and still is. Currently, it also includes topics such as sanitation, biodiversity, land degradation, deforestation, desertification, etc. What’s more, impact investing has moved from niche to mainstream with new generations bringing new expectations in impact investing regarding sustainability, diversity, gender equality, and ethics. On the whole, impact investing has become much more mature and meets all kinds of criteria that institutional investors are looking for: volume, scalability and yield. Across the globe, credit agencies have come into existence in developing countries, supervision and laws and regulations have been implemented, periodic reporting on risk and return has been improved, investor protection has also improved. That has made this sector more accessible to institutional investors; they now really can make ‘real world impact’.”
Yet impact investing as an investment category accounts for less than one per cent of the asset allocation at pension funds. Is there still timidity among pension funds?
“A project must have a certain size for institutional investors. Of course, it must also deliver a return that fits in with their fiduciary responsibility. Another threshold is the illiquidity of the impact investment. Information and impact data may also be available to a limited extent. ACTIAM can play a key role in accelerating traction in all these areas. We can unburden institutional investors.”
How can ACTIAM unburden institutional investors?
“We are pleased that we can unburden institutional investors by guiding them in their impact journey from brainstorming up to supporting them how to shape their policy and implementing successfully impact investment solution ranging form thematic funds up to a tailor-made impact investing solution to meet their investment, impact and sustainability agenda. We can also facilitate institutional investors by knowledge advancement, education and preferably by letting investors witness a project with their own eyes. One of the things we do is organising study trips in which they can join on-the-ground due diligence when we visit local projects. Further, we can create investment vehicles to make an impact investment work, et cetera. This always starts with the question: what does a pension fund want to achieve with impact investing? Each pension fund has their own profile, investment policy and participants, stakeholders, and requirements. This starts with intentionality, with mapping out a pension fund’s wishes and requirements. Each fund makes its own choices, for example with an ESG overlay, or an impact mandate or an impact fund of funds, but one can also support specific sectors at the request of the wishes of the participants.”
Is this usually sufficient to take away the timidity among investors?
“Yes, education, knowledge transfer and guidance in the process is an important aspect here. In a workshop for pension fund managers, we discuss all subjects and aspects and map them out step by step. Because ultimately, administrators must be accountable to their stakeholders. What choices did they make or if not, why not? In that respect, I am extremely happy with the ACTIAM/Cardano partnership. We both have an excellent track record when it comes to involving and guiding pension funds in this process. Impact investing is the perfect category for combining the knowledge and experience of our Cardano colleagues with the impact investing expertise of ACTIAM. In this partnership with Cardano, we are very well positioned to help institutional investors reduce the complexity of impact investing. It will become increasingly important in an investment portfolio and will become a standard component of asset allocation. Moreover, it is a common theme within many of the SDGs, SDG 8 (decent work and economic growth), SDG 12 (sustainable production and consumption) and SDG 17 (partnerships).”
Why is impact investing so important to you?
“At the beginning of my career in the financial sector, I discovered you can actually use capital to make a change for the better, both in the economy and in the real world. That was a revelation. The same applies to impact investing. Together with colleagues, I use my knowledge and experience to make a ‘real world impact’. The good news for pension funds is: impact investing is always a team effort. We help institutional investors with passion, conviction and commitment! And remember, each pension fund manager or investor is also a father, son or friend. Together, we as humans have a responsibility which does not stop at our front doors. Therefore, you should take stock of your own moral compass and consider becoming an ambassador for impact investing at your own pension fund, because remember impact investing as an investment category amounts to less than one percent of the asset allocation for pension funds. Funds need your help to move the needle on impact investing. Let’s go from ‘can’ to ‘should’!”