Power of Conversation: An evening discussion with Pictet Wealth Management and Conduit Capital
This was one of the main topics of discussion at a dinner co-hosted by Conduit Capital and Pictet Wealth Management at The Conduit in June. Attendees at the intimate event included individuals from across family offices, the investor and entrepreneur communities, spanning varying stages of comfort and experience in engaging in the ESG, Socially Responsible Investing (SRI) and/or impact investing spaces.
The evening featured a fireside chat with Rosa Sangiorgio, Head of ESG at Pictet Wealth Management and Asha Lad, Chief Investment Officer at Conduit Capital, as well as an interactive discussion with attendees.
1. We’ve shifted from the “why” to the “how”
The need to consider Environmental Social and Governance risks in order to make informed investment decisions has become increasingly accepted by the mainstream investor community over recent years, accelerated by factors such as the COVID-19 pandemic, widespread consumer pressure and destructive weather challenges attributed to climate change.
While not yet wholly mainstream, SRI and impact investing are also well on their way to being considered as more widely accepted practices. The conversation has shifted: we know why we need to invest for profit as well as purpose, and now we need to identify the most effective way of doing so (how).
There are notable differences in opinion across investor groups, asset classes and markets on the exact definition of terms like ‘ESG’ or ‘impact investing’. As we work to make investing with purpose the norm, the key is not to consider these differences as roadblocks but instead as essential ways to grow for fund managers, asset allocators and members of the public who want to get involved.
2. Collaboration around best practices can help get us aligned sooner
Conduit Capital and Pictet Wealth Management share a belief that transparency around the impact investment approaches that are and aren’t working will inspire replication, therefore enabling faster adoption. This means sharing compelling case studies openly, whether that is global government regulation practices, investors on impact frameworks or entrepreneurs on measuring impact.
3. The role of concessionary capital – or blended finance – is not a silver bullet solution
This is a nuanced conversation in the investor community with differing views on the merits of concessionary capital – and, similarly, blended finance – across the lifecycle of investments.
The one point of agreement is that the risk-adjusted capital principle is a good discipline; a fundamental responsible concept in corporate finance and capital markets and one that should continue to be respected.
At the same time: how do we deal with early-stage projects seemingly falling below the efficiency frontier, with plenty of unknowns and “traditionally calculated” financial risks withholding the vast potential for long-term positive impact? This is where concessionary capital, philanthropic ventures and blended finance could support the learning curve and navigate the challenges on the horizon.
The evolving discussion and collaboration between different capital sources, be it philanthropic, private or public, equity or debt, will likely highlight both the benefits and any unintended consequences of the use/misuse of one or the other form, and allow build best practices for the future.
4. A planet positive entrepreneur will need many forms of capital throughout their journey
Planet positive entrepreneurs are going to need access to a range of market competitive options for different forms of capital throughout the lifecycle of their business model: from public or private debt, to public or private equity (venture, growth, buy-out), to real assets.
The Global Impact Investing Network (GIIN) estimates the current market size of the Impact Investing market at $715 billion. In comparison, “traditional” private markets alone were worth $9.8 trillion in 2022, according to a report by McKinsey.
Therefore, it is important for “traditional” capital to understand, and be comfortable with, how to participate and enable entrepreneurs to realise transformative business models. The journey of fostering awareness, amplifying success stories and challenging old short-term behaviours has only just started.
5. Impact measurements continue to be a challenge
There is much discussion in the market that impact measurements are simultaneously standardised – thus impacting relevance across asset classes – and evolving, with complex emerging metrics and parties.
We are faced with an alphabet soup of terminologies, exacerbated by the number of emerging metrics and frameworks. Our crystal ball thinking is the market will need to move to consensus ahead of regulation taking the lead, with impact assurance companies likely playing a growing role.
6. Investing industry challenges are still a mystery to many entrepreneurs and the wider public
To some entrepreneurs, as well as interested members of the public, it seems that the investment industry needlessly detracts and delays from investing in capable management teams and companies that are focused on driving much-needed solutions. There is a prevailing narrative that investment decisions are all about numbers and rules over people and outcomes.
By not taking the time to communicate their decision-making process and the obstacles they face around areas like fiduciary responsibility, investors may be at risk of isolating the beneficiaries of their capital, as well as the clients they ultimately serve.
There is much work to be done. It starts by being human with each other.