Q&A: Snowball CEO Daniela Barone Soares on impact trends

Paul Tilt: We are witnessing an uptick in impact strategies and impact-labelled products. What are the main drivers of this?

Daniela Barone Soares: This is a relatively new market, so one driver is the increased awareness and track record of pioneering organisations in the space – Snowball, for example, now has a three-year track record. Another driver is the genuine desire from investors to understand where their money is going and what it is being used for, and to invest in line with their values. Finally, the millennial generation wants to work for and invest in products that have a positive social and environmental impact – and they are pushing their families, the companies they work for and society in that direction.

PT: Have you seen a big increase in the types of institutions carving out impact allocations?

DBS: Family offices and foundations have led the way – as often happens, asset owners have more discretion to act. That being said, foundations still hold small allocations to impact (and generally see it as separate from the rest of their endowment investments).

We are always looking around to find other investors to share ideas with and network. It is interesting that in our last three private market deals – aside from Big Society Capital – we have been the only UK institutional investor.

Snowball views private market deals as more impactful by virtue of bringing additional capital to social and environmental issues – and, because we have been investing in this market for some time, we are confident in making such investments and accepting the higher risks. Looking at public markets – for example impact equities and green bonds – our sense is there are more institutions, including pension funds, getting involved.

PT: We hear participants can find the measurement of impact difficult. Are people coalescing around certain initiatives and measurement techniques?

DBS: We continue to collaborate closely with the Impact Management Project (IMP), as well as use and build upon their impact measurement framework. There is still some way to go, but we feel the industry is shifting from each firm claiming to have a "proprietary impact metric", which does not help investors, to the adoption of common measurements like IMP. This is helpful in moving the discussion from measurement to execution, and allows investors to seek the best, most impactful managers. We have published a report on our use of the IMP framework and think transparency and collaboration is essential if we are to develop common standards.

Business can no longer solely focus on profit to the exclusion of the people and the planet. Maybe the Covid-19 crisis is highlighting this dislocation?" – Daniela Barone Soares, Snowball

PT: What are the main barriers for impact investment becoming more mainstream?

DBS: There has not yet been a broad acceptance that business can no longer solely focus on profit to the exclusion of the people and the planet. Maybe the Covid-19 crisis is highlighting this dislocation? Other impediments include the belief that there is a trade-off between impact and returns, which is not true; the confusion around the meaning of impact; the lack of common impact measurements, which restricts investors from comparing different opportunities; and the use of impact as a marketing tool (the aforementioned "impact-washing") rather than as an investment philosophy seeking to ameliorate social and environmental issues.

PT: Some funds are not branded impact, but have ESG and climate themes at the centre of the investment thesis – do you think these types of strategies can be classified as impact?

DBS: No – and the less we confuse the investor, the better. ESG tends to look at environmental, governance and social issues from a risk-based approach, so you can end up with the bizarre situation of best-in-class ESG companies being included in portfolios irrespective of the actual product or service that they produce. Impact aims to address social and environmental problems, while delivering attractive returns to investors, keeping in mind risk, return and impact. Impact investments are therefore intentional, additional to what might have happened anyway, and measurable so that improvements are tracked, and stakeholders involved and informed.

PT: Do you think the Covid-19 crisis will influence impact investing?

DBS: Absolutely, and in many ways. Some investors will see this crisis and the problems it is having on their balance sheet and only think about repairing that – they will leave thinking about impact for another day. However, this pandemic has allowed us to appreciate with greater clarity how interconnected we all are – how exploitation of wildlife can affect under-invested healthcare systems and lead to increased social isolation. While the virus hits both rich and poor, young and old, we know that it will be the old, sick and poor who are most likely to suffer the worst. Many investors will be seeking to ensure that, while their capital achieves attractive returns, it also achieves improvement in the social and environmental systems that affect us all and prevents another global pandemic from happening again.

This Q&A is an extract from Unquote's Impact Investing Report 2020, which can be downloaded in full here

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