Impact investing vs ESG: which produces the better results?
Some investors believe direct backing for enterprises is more positive than using a risk-focused fund manager
Impact investing is growing, but too slowly given the staggering annual funding gap of USD2.5 trillion to achieve the Sustainable Development Goals by 2030. And the greatest challenges for people and planet won’t stand for half measures. We need much, much more impact capital to increase prosperity and social progress for all, eliminate inequalities and injustices and preserve the planet.
That's why we've teamed up with the Financial Times for the second time to put impact in the big headlines and on the front pages. And to mobilise more mainstream capital for impact.
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Every Thanksgiving, Terrence Keeley asks his relatives to review the funds in their retirement accounts and explain why they selected them. All his younger family members tell him they favour funds investing in line with environmental, social and governance (ESG) principles — because they want to do well, and do good. “And it makes me cry because those funds are doing no such thing,” he says. “They are underperforming and doing nothing to make the world a better place.”
Keeley speaks with some authority on this. With four-decades in the financial services industry, including stints at UBS and BlackRock, he is now the author of a book called Sustainable: Moving Beyond ESG to Impact Investing. In it, he argues for a shift away from risk-focused ESG investments and towards investments that drive positive impact. And he is not alone.
“Our take on ESG is that it’s more about exclusion, about trying to avoid companies that have bad scores,” agrees Nancy Pfund, founder and managing partner of DBL Partners, a San Francisco-based venture capital and impact investment firm. “It does help ensure companies manage risk and meet standards, but doesn’t actively help in solving pressing challenges.”
