Nearly half of Nordic institutional investors currently invest in impact funds – but on average allocate only a small part of their portfolios to these kinds of strategies, according to a study by NN Investment Partners (NN IP).
While 43% of institutions in the region invest in impact-based funds, nine out of ten expressed an interest in doing so, and over 20% said they plan to do so in the near future.
Despite increasing interest in strategies designed to have a beneficial environmental or social effect, on average investors in Nordic countries allocate around only 5% of their total portfolio to impact funds, the report found.
Some investors said that adopting an ESG approach may cost them returns, but 75% of those with established allocations to impact strategies believe net returns will hardly differ from traditional strategies.
Edith Siermann, NN IP’s head of fixed income and responsible investing, said: “Our research shows that the appeal of impact investing is not limited to creating a better world. Improved risk and return and sustainable growth are also important, which explains why many investors have indicated to us that they want a broad range of impact products to choose from.”
Impact strategies are often measured against the United Nations 17 sustainable development goals (SDGs). While seeking to invest in a “greater good”, they aim to reduce longer-term portfolio risk and offer access to sustainable growth companies.
“There are hurdles to be overcome, including the limited size of the investable universe, fee models that are out of synch with the going rate for impact strategies and the complexity of allocating to SDGs,” Siermann added.
“Whereas the last decade has been about exclusion, the next 10 years will be about how to measure and increase impact. This is one of the pillars of our responsible investing approach because the better you can measure an impact, the better you can make one.”
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