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Maintaining integrity in impact
As featured in PEI, Rekha Unnithan and David Haddad, co-heads of impact investing at Nuveen, discuss the expanding impact investment ecosystem and how players must be held accountable for delivering on their promises.
Q: How have you seen impact investment evolve over the past decade?
Rekha Unnithan: In addition to a massive increase in assets under management, there has been a real diversification in the types of players involved. Ten years ago, the market was primarily dominated by development finance institutions, alongside a handful of institutional investors like us, who believed in the investment case for both impact and returns. Today, there are ten times as many participants of every shape and size.
The publication of the United Nations Sustainable Development Goals has been an important driver of this growth, allowing the market to coalesce around a framework and to articulate a thematic investment approach. I would also point to the maturity of the impact businesses themselves. Ten years ago, these business models were just being conceived and so a lot of the capital supporting them was early stage in nature. Now many of those companies have scaled successfully and are serving mainstream value chains. They therefore require more capital – and know how – as they proceed along their growth journey.
Q: What about developments in the challenges being addressed by impact investment themselves?
Rekha Unnithan: Absolutely. There is an acknowledgement now that climate change is real – that temperatures are rising, and extreme weather events are increasing in severity and number. Income inequality also continues to increase and is something that is happening right in front of people’s eyes. It is evident in big cities and in the refugee camps of Europe. It is no longer something that can be ignored. So yes, while the supply of impact capital has certainly grown, so too has the demand.
Q: What makes private equity particularly well suited to impact investment?
David Haddad: The way in which private equity can identify and amplify impact through direct influence of the management team allows it to improve the strategy and growth of a business – whether that pertains to financial performance or impact. Private equity is very tactile and its ability to be there at the table is a real advantage.
I would add that it is a patient asset class and very flexible in terms of how investments are structured. Those longer-term investment horizons, compared to the public markets where the focus is on quarterly results, make a lot of sense in the context of impact investment.
Q: What can impact investment ultimately achieve and what has its success been so far?
Rekha Unnithan: In terms of our own portfolio, over the past ten years we have supported 129 million low-income borrowers and reached 14 million low-income affordable healthcare patients. We also know that 67 percent of our low-income beneficiaries are women, and that we have reduced 1.8 million tonnes of carbon emissions and recycled 80,000 tonnes of waste, in addition to providing 20,000 units of affordable housing. We are armed with great information about the past which gives us the tools to be diligent about the future.
Q: What is needed to facilitate the asset class’s continued growth?
David Haddad: I think it will be important to continue driving more and more institutional capital towards meeting these global goals. I am relatively new to the impact industry and it still feels fairly nascent to me. We do see a great deal of institutional appetite, particularly from certain geographies, but we need to make sure we catalyse that capital, if we are to have a chance of solving the world’s problems.