Impact investing study in the Private Equity Field
Impact business Afternoon
May 23th, 2017, Helsinki
Collaborative study
© 2017 Deloitte & Touche Oy, Group of Companies.
A collaborative study by FVCA, Sitra and Deloitte
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Examples of impact themes:
“IMPACT INVESTING IS AN
INVESTMENT APPROACH THAT
INTENTIONALLY SEEKS TO CREATE
BOTH FINANCIAL RETURN AND
POSITIVE SOCIAL OR ENVIRONMENTAL
IMPACT THAT IS ACTIVELY MEASURED.”
ENVIRONMENTAL THEMES:
• Renewable energy
• Resource and energy efficiency
• Climate change
• Water and air quality
• Circular economy
SOCIAL THEMES:
01
02
03
04
Intentionality
matters
Targets
financial
returns
Targets
environmental
or social impact
Outcomes
are actively
measured
© 2017 Deloitte & Touche Oy, Group of Companies.
A collaborative study by FVCA, Sitra and Deloitte
• Health and wellbeing
• Education
• Affordable housing
• Financial inclusion
• Food security
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Impact investing
study:
3
1.DEMAND?
2.CURRENT STATE?
3.FUTURE?
”What do institutional
investors think about
impact investing?”
“What is the current state of
ESG maturity and the role of
impact for the Private equity
investors?”
”What can be said about
the future of impact
investing in the Private
equity field?”
OBJECTIVES:
4
STEPS:
© 2017 Deloitte & Touche Oy, Group of Companies.
INSTITUTIONAL INVESTORS
INTERVIEWS
SURVEY FOR PEs
PE INTERVIEWS
FINAL REPORT
5
18
5
Institutional
investor interviews
Answers to
survey
Private equity
interviews
605
Number of portfolio
companies
A collaborative study by FVCA, Sitra and Deloitte
7,2
Billion euros
invested
4
Framework for responsible investing
Increased measuring, reporting and transparency
Return, risk & impact
Return & risk
ESG risks
ESG
opportunities
ESG
integration
FOOTPRINT
Thematic
investments
Impact investing
HANDPRINT
•
Emissions
•
Cleantech
•
Human rights
•
•
Governance
Sustainable
development
•
Health and
wellbeing
© 2017 Deloitte & Touche Oy, Group of Companies.
A collaborative study by FVCA, Sitra and Deloitte
Impact investing
and thematic
investments bring a
third dimension
next to return and
risk.
The focus is on
solving
environmental and
social problems.
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Footprint-Handprint matrix
Based on the current
state of ESG maturity
and the role of
impact, actors can be
divided into four
categories.
High
ESG EXPERT
IMPACT WITH RESPONSIBILITY
(FOOTPRINT)
(FOOTPRINT + HANDPRINT)
ESG
Moving to the right
upper corner =
Footprint + Handprint
BEGINNER IN THE JOURNEY OF
RESPONSIBILITY
IMPACT EXPERT
(HANDPRINT)
Low
Low
© 2017 Deloitte & Touche Oy, Group of Companies.
Impact
High
A collaborative study by FVCA, Sitra and Deloitte
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DEMAND?
Institutional investors
© 2017 Deloitte & Touche Oy, Group of Companies.
A collaborative study by FVCA, Sitra and Deloitte
7
Institutional investors have systematically built their
practices around ESG
Development of ESG practices between Institutional
investors and Private equity investors:
2
1
Side letters &
ESG
principles
© 2017 Deloitte & Touche Oy, Group of Companies.
3
Reporting
requirements
Continuous
dialogue
between LP &
GP
(+advisory
committees)
4
Institutional
investors expect
Private equity
investors to
proactively develop
their ESG practices
and communicate
on their efforts.
?
A collaborative study by FVCA, Sitra and Deloitte
8
“The portfolios of Private Equity
investors ALREADY INCLUDE LOTS OF
IMPACT”
Cleantech, circular economy, health and
wellbeing…
© 2017 Deloitte & Touche Oy, Group of Companies.
A collaborative study by FVCA, Sitra and Deloitte
9
Impact investing?
The impact investing
ecosystem is still at
the early stage.
Institutional investor interviews - Key findings:
• The broader change in society is driving the growth of impact investing
• Financial return and impact can go hand in hand – financial returns can not be
sacrificed
• Current ESG practices among the Private equity investors form a solid base for the
development of impact investing
• Impact can be used as a tool to identify future proof business opportunities
(Thematic investments, UN Social Development Goals)
© 2017 Deloitte & Touche Oy, Group of Companies.
A collaborative study by FVCA, Sitra and Deloitte
Institutional
investors are
familiar with impact
investing and they
are following closely
its development as
well as building their
own approaches to
impact investing.
10
CURRENT STATE?
Private equity investors
© 2017 Deloitte & Touche Oy, Group of Companies.
A collaborative study by FVCA, Sitra and Deloitte
11
ESG and impact maturity in the Private equity field
High
The transition to right
upper corner happens
trough the
development of ESG
practices.
ESG
Responsible investing
and ESG practices
have been already
integrated as a core
part of Private equity
investors’ business.
Low
Low
Impact
= PE
© 2017 Deloitte & Touche Oy, Group of Companies.
= PE average
High
= Institutional investor average
A collaborative study by FVCA, Sitra and Deloitte
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01
Responsibility is a core part of
Private equity investors’ business
ESG - FOOTPRINT
The focus of ESG has moved from
risk management to opportunities
However, the role of ESG measuring
is still at the moderate level
41,2
%
Responsible investing can be
seen as a basic requirement.
72,2 %
02
03
04
We haven’t build practices to
measure and monitor ESG.
ESG has also role in developing
portfolio companies and in exit
How do you see the role of ESG in your business?
61,1 %
61,1
%
50,0 %
We consider ESG related opportunities
in developing portfolio companies.
33,3 %
11,1 %
ESG is important
from the value
creation point of
view
ESG creates
opportunities for
us
© 2017 Deloitte & Touche Oy, Group of Companies.
38,9
%
We try to build an interesting
investment story from the ESG
point of view for our investments.
Our ESG focus is
ESG does not
mostly on risk bring any value for
management
us
A collaborative study by FVCA, Sitra and Deloitte
13
IMPACT - HANDPRINT
01
Impact investing as a term is
familiar to respondents
17,6
%
02
03
52,9
%
I don’t know the term impact
Investing/I have a weak understanding.
Investments are approached
primarily form return perspective,
but impact is also present
11,1
%
We target only return.
© 2017 Deloitte & Touche Oy, Group of Companies.
vs.
72,2 %
Thematic investments are seen as
interesting opportunities
04
Thematic investments, targeting
environmental and social impact,
provide interesting investment
opportunities.
However, impact is not yet
visible in the PEs’ strategies
44,4
%
Impact does not have a role in our
investment strategy.
We seek also impact, but
return is the first target.
A collaborative study by FVCA, Sitra and Deloitte
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“We can target impact by investing in
INNOVATIVE COMPANIES THAT
CHANGE THE WORLD”
© 2017 Deloitte & Touche Oy, Group of Companies.
A collaborative study by FVCA, Sitra and Deloitte
15
FUTURE?
© 2017 Deloitte & Touche Oy, Group of Companies.
A collaborative study by FVCA, Sitra and Deloitte
16
Challenges?
What you consider to be the biggest challenges
for the growth of impact investing?
55,6 %
Understanding the relationship between impact and return
Knowledge and skills
22,2 %
”There is enough
information available,
but concrete procedures
are missing or they are
still emerging.”
83,3 %
Impact measurement
50,0 %
Immaturity of ecosystem
Lack of investment opportunities
© 2017 Deloitte & Touche Oy, Group of Companies.
16,7 %
A collaborative study by FVCA, Sitra and Deloitte
17
Future outlook?
Are you going to consider impact in the next fund?
38,90%
27,80%
27,80%
Yes
I dont know
Only 5,6 percent of
respondents say that
they are not going to
consider impact in the
next fund.
5,60%
No
© 2017 Deloitte & Touche Oy, Group of Companies.
Maybe
A collaborative study by FVCA, Sitra and Deloitte
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KEY FINDINGS and
RECOMMENDATIONS
© 2017 Deloitte & Touche Oy, Group of Companies.
A collaborative study by FVCA, Sitra and Deloitte
19
KEY FINDINGS:
© 2017 Deloitte & Touche Oy, Group of Companies.
01
ESG has a central and integrated role in the PE’s business –
the focus has moved from risks to opportunities.
02
ESG forms a solid base for the growth of impact investing in
the PE field.
03
Impact can be seen as a tool to identify future-proof long
term business opportunities.
04
Institutional investors see that PEs have lots of impact in their
current portfolios – currently this impact is not utilized.
05
There is both demand and potential supply for impact investing
in the PE field, but currently they don’t encounter.
06
The most important driver for the growth of impact investing,
is seen to be the interest of institutional investors.
A collaborative study by FVCA, Sitra and Deloitte
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01
Current portfolios: Identify the impact in the current portfolios
and utilize it more effectively.
02
Proactive communication: Bring impact visible and
communicate it to LPs.
03
Future-proof business: Focusing on the handprint can help to
understand, which themes will be the most important in the future.
04
Bring impact to strategy: Include impact in the investment
strategy and use it as a part of the investment stories.
05
Common language: Building a common language and dialogue
between LPs and GPs is vital for the development of impact
investing.
06
Need for pioneers: Ecosystem is still at the early stage and
someone needs to be first.
© 2017 Deloitte & Touche Oy, Group of Companies.
A collaborative study by FVCA, Sitra and Deloitte
RECOMMENDATIONS:
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THANK YOU!
Riikka Poukka
Collaborative study
Leader,
Sustainability Services
[email protected]
+358 50 5758217
© 2017 Deloitte & Touche Oy, Group of Companies.
A collaborative study by FVCA, Sitra and Deloitte
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