It is no longer sufficient to manage risk; now is the time to invest for impact

At the same time, the urgent need to reduce emissions opens a great market opportunity. Urgent climate actions, legislative pressure, technological advancements and sustainable consumer preferences also create enormous opportunities for investors if they can leverage them.

According to IEA’s World Energy Outlook Special Report* released this week, achieving the COP28 goals for renewables and energy efficiency could cut global emissions by up to 10 billion tonnes by year 2030. If achieved, this progress would be significant in meeting the Paris Agreement. The key pledges made at COP28 include transitioning away from fossil fuels, tripling renewable energy capacity and doubling energy efficiency improvements by 2030. However, to achieve these goals, significant investment is needed in areas such as grids and storage.

It is estimated that to reach the renewable energy goals, 25 million kilometres of electricity grids should be built and modernized by 2030. In addition, the world would need 1 500 gigawatts (GW) of energy storage capacity by 2030, of which 1 200 GW from battery storage, a 15-fold increase from today. It is evident that action is needed, now. And investors can play a significant role in these advancements.

From the investing viewpoint, one means to tackle this challenge is thematic impact investing, which has gained prominence alongside responsible investing in recent years. 

Focus on companies that have a positive impact on the environment and society

Responsible investing traditionally focuses on companies that don't harm the environment or society. Impact investing, on the other hand, goes a step further and focuses on companies that offer solutions to challenges. These companies contribute to positive outcomes in the areas mentioned above, for example. Investment decisions are made based on the company's core business, and the positive impact is approachable for the investor.

Impact themes on the environmental side can range from renewable energy to energy efficiency. On the societal side, impact investments focus on themes like healthcare, microloans in emerging markets and companies that develop medicine.

At Evli, we already see the positive double effect of impact investing: investments can advance critical issues, such as mitigating climate change or leaps in science in a tangible way while offering attractive financial returns.

Evli Impact Equity Fund offers a solution to meet the evolving needs of investors

One example of the unlocked investment opportunity is Evli’s Impact Equity Fund, which addresses the global challenge by investing  in both developed and emerging markets.

The fund actively selects a global portfolio of undervalued and growing quality companies that significantly contribute to low-carbon, resource-efficient and sustainable development. What sets it apart from similar funds is its clear investment strategy as well as a consistent and transparent process for selecting investments and assessing impact.

The companies in the portfolio provide products, services and technologies that address the most urgent needs in sustainable development and green transition. The fund also aims to achieve positive measurable environmental or social outcomes by investing in companies that are undergoing significant transformation

Evli's clients and investors have long wished for a fund that supports the net-zero emissions target by 2050. Evli Impact Equity Fund is for mission-driven and value-based investors, such as endowments, foundations and family offices. It is also suitable for private investors who are passionate about environmental and social issues and want to express this in their portfolios.

The fund's focus areas in emissions reduction are renewable energy production, distribution networks, infrastructure construction, planning, electric vehicles and carbon capture technology. Investments in the portfolio include companies like Iberdrola, Spie and Clean Harbors. It is estimated that 80% of portfolio companies contribute to the emission reduction goal.

Evli Impact Equity fund has a distinctive profile

Evli’s fund portfolio differs significantly from other impact funds. Looking at the portfolios of European sustainable Article 9 funds, we can see that their investments are very much alike, with Nvidia and Microsoft being the most popular picks. However, Evli's Impact Equity Fund has only four shared holdings with its peers, and the portfolio's valuation is roughly 50% lower.

The fund is committed to making at least 80% sustainable investments, of which at least 25% are environmentally sustainable investments and at least 5 % are socially sustainable investments. Currently, 80% of the portfolio is invested in transitioning to a low-carbon economy, 14% in affordable and accessible health care and 6% in high-quality education.

Evli Impact Equity

• Evli Impact Equity is a global thematic equity fund launched in 2023. The fund has two key objectives: to deliver competitive financial return and achieve positive measurable environmental or social outcomes.
• The strategy is to focus on sustainability themes that are expected to have the greatest impact and growth potential. 
• The fund invests in underpriced, high-quality companies that contribute to the fund's sustainability objectives through their economic activities.
• The fund invests in equities in developed and emerging markets. 
• The fund employs a bespoke impact management and measurement framework to monitor and assess the achievement of sustainability objectives.

The fund’s impact objectives

1. Enhance clean and efficient energy use
2. Improve water access, use efficiency and quality
3. Reduce pollution, recover, reuse
4. Provide quality education for all
5. Ensure healthy lives

Sources:

*IEA, From Taking Stock to Taking Action How to implement the COP28 energy goals, September 2024 From Taking Stock to Taking Action (iea.blob.core.windows.net)