Sustainability and impact advocates can close the 'do-say gap' in 21st-century investing, writes Kieron Boyle
Capital changes the world around us. Given the urgent global challenges we face as a society, from climate change and rising social inequality, we need a transformation in how capital is invested. This means action from the individuals and organisations who own and manage capital, as well as those who advise on its flows.
Over 80% of consumers want their money to do good, as well as deliver return. Yet the current reality is that most investment professionals within the financial system have yet to fully embrace sustainability and real-world impact as integral to the investment process.
More than that, many financial professionals are operating against a backdrop where investment approaches that consider sustainability, ESG, and impact are being widely scrutinised as part of public debates, legal challenges, and attempts to exploit these themes for political agendas. It's clear now, if it wasn't before, that transforming systems is a contact sport.
Perhaps this goes some way to explaining the discrepancy between what many professionals say versus what they actually do, commonly called the "do-say gap".
It's increasingly hard to find people in the financial services industry who say that sustainability and impact aren't vital for a financial system that is fit for purpose in the 21st century. But why is it then that the sustainable investment market is still less than a third of professionally managed assets? Or that the impact investing market – high-integrity sustainable investment – only represents roughly 1% of the $98 trillion global investment market?
The answers, of course, are varied. Change takes time. Returns matter. Policy, regulation and law need to point in the right direction. Data needs investment. Theory needs to meet practice, and so on.
But might some of the challenge also be how we, as a community of practitioners, are communicating the opportunity to investment professionals?
Like my grandfather on holidays overseas, our frequent strategy is to say the same messages, but louder. But what if turning up the volume isn't the only solution? Perhaps we need to do more to ask ourselves who is listening, what they are hearing and whether the things we are saying — as sustainability and impact advocates — are contributing to a value versus action gap.
My instinct is that they very much could be.
I'd love to hear from those thinking deeply about these issues. At the Impact Investing Institute, we're working to explore how to transform perceptions around sustainability and impact investing practices so that they reach much further than they do now.
First, we want to be grounded in evidence to identify the factors preventing decision makers within capital market from seeing impact, alongside risk and return, as integral to the investment process. We're going to explore this through research — so do watch this space.
Second, we aim to identify models for accelerating chance. The work will come up with practical solutions, including broader frames, narratives, and messaging that encourage more decision-makers to invest in the economic opportunities of an inclusive transition to net zero, and that manage the risks to the financial system of climate change and social fracture.
Third, we intend to share the research outcomes and models for change to equip sustainability and impact investing advocates with what they need to help grow the field and mobilise more capital in this space.
There are many reasons to be excited about the potential of finance to achieve positive change at a great scale, not least the huge progress that has been made in a short period of time. But a more sober reckoning might ask whether what has got us here, will get us there? And would we — as a community — know how to answer that? It feels important that we should.
Kieron Boyle is the CEO of the Impact Investing Institute, an independent non-profit set up to connect capital to impact. The Institute acts as a bridge between new economic ideas and mainstream capital markets.
This is part of a series of monthly columns Boyle writes for Environmental Finance.
See the others here:
