We Need to Ramp Up Social Impact Investment

Dick Van Ommeren, Chair of the Management Board at Triodos Investment Management

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We need to ramp up social impact investment

Dick Van Ommeren, Chair of the Management Board at Triodos Investment Management

By way of this column, I’m calling on the investment industry to ramp up its investment in social impact and elevate it to the same priority as environmental impact investment. Sustainable investment has for far too long focused on environmental impact, but the world needs holistic investment approaches that equally prioritise social outcomes alongside environmental ones if we are to achieve a truly sustainable world. Clean energy, for example, must be accessible to all and not just a privileged few. Without this balance, a sustainable and equitable future will remain unachievable.

Polarisation worryingly on the rise
Having social impact embedded into investment strategies means assessing issues like fair labour, human rights, poverty, equity and access to education and healthcare. These key factors shape employees, communities and value chains and can foster societal stability and prosperity. This is particularly crucial at a time when global political and social polarisation is worryingly on the rise. As an industry, we hold enormous power to either deepen social divides or to become a force for unity and progress. I’d like to see us lead with positive purpose.

In recent times, I have witnessed a growing willingness and momentum in the industry to act. The rise of social bonds, for example, is encouraging, but we must go further. We can no longer afford to wait for sluggish politics and delayed or diluted regulations to spur change. I believe that it is our indisputable duty to prioritise societal needs and ensure that investment strategies actively tackle the pressing issues we all know need to be addressed.

Also, the industry does not have to wait for new socially targeted investment vehicles to take action. Investors can already incorporate social impact considerations into their current investment practices. For instance, we (Triodos Investment Management) require stocklisted companies to have robust business-related social processes, controls, management systems and policies in order to be eligible for investment. We analyse their approach to issues such as employee treatment, engagement with works councils and labour unions and the integration of social values into supply chains. We also heavily engage with investees on remuneration practices.

The need for a Social Impact Framework
All that said, regulators and lawmakers do still need to provide clear definitions and comprehensive metrics. For far too long, social impact investments have played second fiddle to environmental investments, which benefit from established regulatory frameworks and measurable metrics that facilitate performance tracking and alignment with financial returns. In contrast, social impact lacks equivalent standardised evaluation methods, making it difficult to measure and tangibly report on social outcomes.

In Europe, for instance, the regulatory environment requires companies to report on emissions across their value chains, and extensive metrics enable investors to select, monitor, compare and report on performance effectively. The same cannot be said for social impact reporting, and this presents challenges for the industry. I therefore strongly support the recent proposal to the European Commission for a Social Investment Framework that aims to provide the necessary structure to prioritise and advance the financing of social initiatives.

Stronger and more resilient portfolios
In a rapidly changing world, neglecting social impact investment risks overlooking critical factors that affect not only financial performance but also societal well-being. By investing in social initiatives that prioritise social issues, investors build stronger and more resilient portfolios while building healthier, more equitable societies, that ultimately lead to better economic outcomes, more adaptive businesses and stronger communities. Again, I therefore challenge the industry to immediately make social impact more prominent in its investment strategies so we can drive well-balanced solutions and achieve a truly sustainable world.