“More and more people want to make an impact with their investments”

Over the last five years, interest in sustainable investment has snowballed, says Jan Willem Hofland, head of Investment Sales NL. There’s now a keen awareness that investments can deliver more than just financial returns.

The bank originally introduced the concept under the banner of ESG investing, which prioritises companies that are committed to the environment, social issues and good governance. For many, though, ESG investing didn’t go far enough. Jan Willem explains, “Committing to a good cause is one thing, but it can sometimes be hard to distinguish between good words and good deeds. Plus it’s often the case that the impact of initiatives isn’t actually measured.” Clients wanted to know whether a company with a high ESG score was truly part of the solution, rather than simply less likely to make an existing problem worse.

Game changers

In a nutshell, ESG investing is about companies that outperform other companies. Impact investing, however, focuses on game changers – companies that make a difference by measurably making the world a better place. These are the front runners in the transition – companies active in wind and solar energy, the production of healthy food, meat substitutes and sustainable building materials.

The impact mandate the bank launched in 2019 was initially open only to individuals with invested assets worth 2.5 million euros or more. The reason was twofold, explains Jan Willem: “We wanted to test this method of investment with a small group of clients. But there was a practical consideration, too. In many cases, trading in green bonds starts at 100,000 euros. So if you want a well-diversified portfolio, you’re easily looking at upwards of 1 million euros.”

Doing as much good as possible

The mandate has proved popular with clients, with plenty of interest from wealthy individuals. They’ve also happened to see healthy returns in recent years, which has only strengthened demand. “Plus we now have four years of returns to show for our efforts,” says Jan Willem. “These are similar over the long term to those of other types of investment, so more and more clients feel confident to take the plunge. But what really sets impact investing apart is that it aims to do ‘as much good as possible’. In that sense, financial returns are of secondary consideration.”

The bank enlists the aid of external parties like ISS Oekom to assess firms against the UN Sustainable Development Goals (SDGs) scoring them from –10 to +10 in relation to multiple targets. Anything above zero represents a net positive impact. As an example, offshore wind farms score high on the plus side because of the clean energy they generate, but they’re penalised for the negative impact they have on birds and marine life.

Expanding impact

Given the popularity of impact investing, ABN AMRO is now making its Impact Funds Mandate available to those looking to invest 50,000 euros or more. But since green bonds still require a hefty minimum investment, the team had to get creative, says Jan Willem: “Think of our portfolio of stocks and bonds as one big bag. New investors are now buying a piece of that bag, so they’re investing in exactly the same impact portfolio.”

The portfolio includes positions in companies like SLM/Sallie Mae, which makes higher education available through student loans. Another is Hannon Armstrong, which invests in climate solutions that accelerate the energy transition.

Not a panacea

Online dashboards now show clients exactly how companies are performing in terms of the various SDGs and how compliant investments are with the Paris Agreement. The companies in the impact portfolio are currently ahead of the compliance curve, but they’ll have to continue to innovate if they want to maintain their lead in the coming years.

“This sometimes comes as a surprise to clients,” says Jan Willem. “It’s our job to tell them that they’re doing as much good as possible and are investing in the front runners in the transition. But even those companies will have to work hard to meet the objectives outlined in the Paris Agreement. We’re completely honest with them: impact investing is not a panacea.”