In the history of investment and commercialisation, the idea of philanthropy has been perceived as distant and far-fetched. Investment, tailored toward the actualisation of a financial gain has been seen as distinct from philanthropy which targets achieving a social good. However, with the advent of impact investments, there has emerged the concept of integrating social and environmental benefits with attaining financial returns. In 2017, The Forum for Sustainable and Responsible Investment valued the current philanthropy market in the United States at nearly 9 trillion dollars. According to the World Economic Forum, impact investment is so significant in that it is potentially helpful in enabling a 1% shift in global capital markets towards social good. The conversion of just about 1% of the global capital market can assist in covering the outstanding $2.5 trillion annual funding gap for the United Nations’ Sustainable Development Goals (SDGs).
One of the most recognisable mediums through which impact investment has tried to influence climatic change is through economic, social and governance strategies (ESG). ESG adopts ‘positive screening strategies’ as opposed to ‘negative screening strategies’ in which investments targets only industries which are making a positive climatic difference. This strategy, precluding oil and gas companies from capital investments, appears ineffective in the overall fight against global warming. In the short term, oil and gas companies or industries which rely on heavy fossil fuels do not appear to have been ‘capital-starved’ from the above development. Also, in the long term, the adoption of ESG policies has not precisely reduced the tonnes of emission in the atmosphere. Global warming is a social issue that necessitates proper response and total commitment before a turning point can be achieved. The emission of ‘climate altering’ gases particularly carbon dioxide has metamorphosed into a thermal blanket which envelopes the atmosphere and retains heat. The target of impact investment is to control the speed at which the atmosphere disintegrates through enabling and encouraging the use of raw materials that have lesser environmental impacts.
The concept of impact investment targeting climatic change is relatively novel. In this regard, whatever successes or failures which would be attained at this novel stage will prove significant in determining the trajectory of impact investment. The following key points can be adopted for effectiveness:
- A great deal of emphasis should be placed on advocacy as much as ESG strategies. This way, industries which constitute environmental damage are not only denied capital but through the tool of advocacy, are subjected to policy and legislative reviews.
- ESG strategies should be made comprehensive across board. In this regard, the effect of a capital boost through ‘positive screening’ can be felt in diverse industries: energy, food, transport and agriculture.