Why it is important to scale impact, but with rigour
A comprehensive best practice toolkit, operating principles to guide investment processes and a sharpened focus on relevant data indicators for effective portfolio monitoring are all key to designing successful impact strategies, says Maria Teresa Zappia.
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Impact manager BlueOrchard was created in 2001 as part of a UN initiative. Its aim was to provide loans to financial institutions to target entrepreneurs and small and medium-sized companies in emerging markets.
“Until then, these financial institutions were financed by development banks, but the idea came up to structure this investment in funds so that they could generate both the social impact of financial inclusion and a financial return,” explains Maria Teresa Zappia, BlueOrchard's Chief Impact and Blended Finance Officer, and Global Head of Impact at Schroders.
Schroders acquired a majority stake in the fund manager in 2019, with the idea of building on its experience and expertise in impact investing. A BlueOrchard team has been working at Schroders since 2019 to design and build a robust offering in this segment.
Assets
Schroders currently has $5.25 billion in assets under management combining all impact strategies, including BlueOrchard, which remains focused on providing access to finance for entrepreneurs in emerging markets. It also manages two private equity vehicles specialising in climate insurance.
“They invest in the entire value chain – insurers, insure-techs, insurance platforms and brokers. The idea is to develop products that protect farmers and crops from weather events in markets where this type of coverage does not usually exist, such as Peru, Tanzania, Tajikistan. The idea is to facilitate this access, which in their case is particularly critical,” Zappia explains.
The manager also invests in listed debt through climate bonds and social impact bonds. Of its total portfolio, the private debt and equity portion remains focused on emerging markets, while listed debt may also include bonds from developed market issuers. Its investment teams are on the ground, with offices in Nairobi, Lima, Singapore and Tbilisi.
From ESG to impact investing
On the relationship between ESG and impact investing, Zappia believes that every investment needs to first consider social, environmental and governance factors, in order to be able to consider creating a social or environmental impact. Therefore, she stresses that “it is important to have a good foundation in sustainability, as in the case of Schroders, with its integration, processes and tools. From there you can start to design an impact offering in different assets and products”.
With close to 25 years of experience in impact investing, BlueOrchard has been continuously developing its processes and methodologies, which have been tested in different market scenarios, including several financial and geopolitical crises.
“We have been pioneers in many markets and continue to be very proactive in risk management, engagement and the development of proprietary tools,” says Zappia. “We have a toolkit called B.Impact, based on best practices in the market. It has been tested and recalibrated in practice. In a still-emerging world like impact investing, this track record is very relevant,” she adds.
Process and the impact
The investment process starts by assessing the potential of each project, as well as the factors that can influence it, such as regulations or climate issues. “With our toolkit, each investment team is able to analyse the impact potential of each project.”
The Operating Principles for Impact Management guide every step of the investment process, whether it is selection, portfolio monitoring or measurement, always with impact at the centre. For Zappia, “impact facilitates access to certain goods and services, in a more affordable and better-quality way. It has to be a central part of the business model, and of course it has to be measurable”.
Regarding this measurement, she assures that “from the beginning we have been very rigorous in the collection and codification of data. Many times, it is not a question of having many indicators, but only the most relevant ones”. Moreover, all the impact process, tools and results are externally audited.
As for the additionality requirement, Zappia puts more emphasis on contribution. “Additionality is a complex concept. That is why our essential reference is contribution, whether it is our contribution as investors, or that of the company. With this perspective, we believe it is possible for a listed company to generate impact,” she says.
Impact at Schroders
When they started working with Schroders, the team at BlueOrchard created an impact incubator to interact with investment managers and teams to explore potential strategies.
As part of that joint work, they have just published the latest Sustainability & Impact Report for Schroders Capital, which covers innovative investment strategies across private markets with assets under management of some $97 billion. These include an initiative that has just started in the UK focusing on access to affordable social housing. They are also working with Schroders Greencoat, a leader specialising in renewable infrastructure acquired in 2022.
On environmental investment, Zappia stresses the need not to focus exclusively on mitigation. “We are one of the few asset managers that have adaptation strategies; it is important to invest in climate resilience now. It is an urgent issue, but there are no easy solutions, which is why we believe that our climate insurance products are very relevant.”
With a global impact investment market of approximately €1.6 trillion, Zappia believes it is important to “scale impact, but with rigour”.
This article was first published in Funds People. The original article (Spanish) can be accessed here.
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