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The desire to take urgent action to protect our planet and human life, largely from ourselves, is not new. Back in 1987, the United Nations’ seminal Brundtland Report identified the ‘three fundamental pillars’ of sustainable development.
A reader today could be forgiven for thinking that the report had been written four weeks ago rather than four decades ago. Its focus on issues such as poverty reduction, gender equity and wealth redistribution is extremely contemporary, and it resonates with us.
In our case, the three pillars are improving wellbeing, improving inclusion, and supporting a just transition to Net Zero carbon. Together these pillars guide our intentional commitment to businesses providing solutions which address society’s key challenges.
The key to successful impact investing is intentionality and our three pillars ensure that the strategy remains focused on its measurable social impact. It is specifically designed for clients who want to make a positive change while also benefiting from long term capital growth by investing in companies that are solving the world’s greatest social challenges. We do this by investing and engaging to improve fair treatment, access, opportunity, and advancement for all people.
Socrates, the ancient Greek philosopher, famously observed that ‘the beginning of wisdom is the defining of terms’. So, let’s follow his eminent example and set out the criteria for our three pillars.
What it is:
In our portfolio we focus on the products and services that provide direct, measurable social impact . Our first pillar is Improving Wellbeing which covers areas such as medical treatments and advances, preventative medicine, meeting basic human needs and mental health and wellbeing.
Our investments in this category include companies involved in hygiene and infection control, diagnostic testing kits and robotic surgical systems. They also extend into areas such as nutrition, clean water, and sanitation which form the very basis of population-level equality of opportunity.
The second pillar is Improving Inclusion which focuses on education, financial equality, and access to resources. Here we invest in companies that improve access to education, promote financial inclusion, and ensure sufficient access to resources for developing countries and marginalised populations.
The third pillar in our strategy is Supporting a Just Transition. For us, that means ensuring that the transition towards a lower carbon economy happens in a fair way, leaving no one behind. For that reason, this pillar focuses on reskilling those most impacted by the transition, upgrading the lived environment by making cities safer and more habitable in order to manage urbanisation, and supporting a more circular economy which reduces waste and improves resource efficiency to maximise quality of life. Typical investments are in education and reskilling providers, water and waste systems, and traffic systems and safety technology.
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"The key to successful impact investing is intentionality and our three pillars ensure that the strategy remains focused on its measurable social impact."
Why it matters:
The challenges facing our world can seem daunting in their enormity and complexity. We believe it is vital to mobilise the huge resources of listed equities to meet the scale of investment needed to address the following core issues effectively.
Improving Wellbeing
Health inequalities are the unfair yet preventable differences in health outcomes for various communities and people. These inequalities are deeply embedded regionally, nationally, and globally. For instance, in the developing world, nearly two billion people have no access to basic medicines, causing widespread suffering that could be addressed and avoided. In India alone, 60,000 children under the age of five die every year from diarrhoea caused by contaminated water and poor sanitation1. A quarter of the world’s population does not have access to safe drinking water.
What’s more the gulf between the haves and have-nots is widening. The human and financial cost is enormous in terms of greater infant mortality, shorter lifespans, lost years of healthy life and significant economic burdens for societies. If your response to this is that ‘something must be done’ then you’re already thinking like an impact investor.
Improving Inclusion
Social inclusion is making sure that everyone in society has the chance to play a full role in the life of the community, regardless of their background, ethnicity, religious beliefs, gender, or sexual orientation.
Unfortunately, inequality is rife across most of the world. An individual’s income and wealth are inextricably linked to who they are, not what they do.
Exclusion is all too prevalent. Around 719 million people live in extreme poverty, struggling to survive on less than $2.15 a day2. Many of them are among the 750 million adults who are illiterate. In many parts of the world, women and girls face discrimination and exclusion simply because of their sex, while people with disabilities often find it difficult to participate fully in society.
Targeting these inequalities stimulates economic growth and creates jobs, breaking the vicious circle of exclusion, poverty, and poor health. Greater inclusion also helps prevent the social unrest and conflict that arises from unfairness and discrimination. The more inclusive a community or society, the stronger and more resilient it is. In our view, there is no better rationale for targeted investment.
Supporting a Just Transition
The concept of a just transition dates back to the era of the Brundtland Report, when US trade unions used it to protect workers who faced losing their jobs with the introduction of new water and air pollution regulations.
Today, a just transition relates to tackling and mitigating the inequalities that arise as the world moves to a green and renewable energy system. While there are clear beneficiaries, many communities, workers and social groups are at risk of losing out socially and economically, and being left behind, if the transition is not managed sensitively.
Of course, the move to Net Zero carbon is hardly the first energy transition that the world has experienced. The UK alone has undergone several fuel changes over the last 200 years – from wood, peat and charcoal to coal, oil and nuclear. However, the thoughtless handling of the shift away from the coalmining, shipbuilding and steel, with no coherent policy measures or strategies in place to tackle the post-industrial aftermath, left a lasting negative impact and a damaging legacy.
The cascade effects of sudden mass unemployment that resulted from the closure of dominant local employers, such as mines, shipyards, and steelworks, in the 1970s and 1980s continues to affect the wealth and affluence of communities, and people’s prospects, to this day.
The powerful lesson here is that while the energy transition side of the equation is inevitable, the social justice element is not.
If you were looking for a similar formula, then it would be Just Transition = climate action + social inclusion.
For example, the greening of the economy in South Africa is disrupting the energy workforce. Currently, eastern South Africa accounts for 80% of the country’s coal production3. However, most of the new jobs in clean and renewable energy are in the Northern Cape region, which creates real barriers for the current skilled workforce in accessing the new employment opportunities. Again, we believe that addressing such structural issues is deserving of focused financial support.
Conclusion:
The Global Impact Investing Network (GIIN) estimates that the total invested in impact worldwide has now broken through the $1 trillion barrier4 indicating the momentum behind a societal shift in mindset towards more mindful, ethical and sustainable investing. As impact investors ourselves, we are delighted by this momentum.
We are also looking forward to a new era of impact investing, with a unique, socially focused impact strategy creating a solution to a previously underserved area of the investment market. We invest in companies that address the problem of human inequity while delivering long-term capital growth.
In doing so, we offer our clients the opportunity to help solve societal challenges and achieve attractive returns – both of which align with our corporate purpose of Investing to Improve Lives.
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Improving Society
Martin Currie’s socially-focused impact strategy aims to positively address the problem of human inequity while delivering long-term capital growth.
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Improving Society
Martin Currie’s socially-focused impact strategy aims to positively address the problem of human inequity while delivering long-term capital growth.
Sources
1Source: Wateraid https://www.wateraid.org/us/where-we-work/india Accessed on 26th June 2023.
2Source: Worldbank as at 30 November 2022. https://www.worldbank.org/en/topic/poverty/overview
3Source: UN SDG as at 6 October 2022,’ Climate action is about people, not just numbers’ https://sdg-action.org/climate-action-is-about-people-not-just-numbers%EF%BF%BC/
4Source: Global Impact Investing Network, as at 12 October 2022. GIINsight: Sizing the Impact Investing Market 2022.
GIINsight: Sizing the Impact Investing Market 2022 | The GIIN
Important information
This information is issued and approved by Martin Currie Investment Management Limited (‘MCIM’), authorised and regulated by the Financial Conduct Authority. It does not constitute investment advice. Market and currency movements may cause the capital value of shares, and the income from them, to fall as well as rise and you may get back less than you invested.
The information contained in this document has been compiled with considerable care to ensure its accuracy. However, no representation or warranty, express or implied, is made to its accuracy or completeness. Martin Currie has procured any research or analysis contained in this document for its own use. It is provided to you only incidentally and any opinions expressed are subject to change without notice.
The document does not form the basis of, nor should it be relied upon in connection with, any subsequent contract or agreement. It does not constitute, and may not be used for the purpose of, an offer or invitation to subscribe for or otherwise acquire shares in any of the products mentioned.
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Martin Currie has procured any research or analysis contained in this presentation for its own use. It is provided to you only incidentally, and any opinions expressed are subject to change without notice.
The views expressed are opinions of the portfolio managers as of the date of this document and are subject to change based on market and other conditions and may differ from other portfolio managers or of the firm as a whole. These opinions are not intended to be a forecast of future events, research, a guarantee of future results or investment advice.
Please note the information within this report has been produced internally using unaudited data and has not been independently verified. Whilst every effort has been made to ensure its accuracy, no guarantee can be given.
The analysis of Environmental, Social and Governance (ESG) factors forms an important part of the investment process and helps inform investment decisions. The strategy does not necessarily target particular sustainability outcomes.
Risk warnings - Investors should also be aware of the following risk factors which may be applicable to the strategy shown in this document.
- Investing in foreign markets introduces a risk where adverse movements in currency exchange rates could result in a decrease in the value of your investment.
- This strategy may hold a limited number of investments. If one of these investments falls in value this can have a greater impact on the strategy’s value than if it held a larger number of investments.
- Smaller companies may be riskier and their shares may be less liquid than larger companies, meaning that their share price may be more volatile.
- Emerging markets or less developed countries may face more political, economic or structural challenges than developed countries. Accordingly, investment in emerging markets is generally characterised by higher levels of risk than investment in fully developed markets.
- The strategy may invest in derivatives, Index futures and FX forwards to obtain, increase or reduce exposure to underlying assets. The use of derivatives may result in greater fluctuations of returns due to the value of the derivative not moving in line with the underlying asset. Certain types of derivatives can be difficult to purchase or sell in certain market conditions.
- The integration of sustainability risks in the investment decision process may have the effect of excluding profitable investments from the investment universe of the strategy and may also cause the strategy to sell investments that will continue to perform well.
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The information contained within this presentation is for Institutional Investors only who meet the definition of Accredited Investor as defined in Rule 501 of the United States Securities Act of 1933, as amended (‘The 1933 Act’) and the definition of Qualified Purchasers as defined in section 2 (a) (51) (A) of the United States Investment Company Act of 1940, as amended (‘the 1940 Act’). It is not for intended for use by members of the general public.
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For professional investors:
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