A thematic approach to impact investing

With the launch of Esmée Fairbairn Foundation’s first deep dive into thematic impact investing, our Head of Social and Impact Investment, Jonny Page outlines our thematic approach to impact investing.

It’s now three years since we launched an allocation to impact investing, testing the potential to achieve market returns by investing into funds that align with our strategic aims and generate a measurable impact – with impact and financial returns working in lock-step. Learn more about our full spectrum of capital, reflecting our range of sustainable investing approaches with different financial and impact priorities.

Thematic impact investing

We have developed an approach to invest our impact investment allocation, called ‘thematic impact investing’. Thematic investing, without the intentional impact, is not a new investment strategy. It is a focus on the future, targeting specific macroeconomic themes, trends or societal developments to identify compelling investment opportunities.

At Esmée, we have a strategy for that future. We want to see a fairer future, we want to improve our natural world, and we want to strengthen the bonds in our communities (our strategic aims). So, we invest in a way that focuses on that future, targeting certain themes, trends and developments that have a positive impact on our strategy.

Thematic impact investing provides a framework to invest at the intersection of compelling investment opportunity and impact.

Being thematic-led means our investment strategy is rooted in the Foundation’s expertise, informing our understanding of opportunity and risk. It means we can add value as investors. It means we can clearly articulate our long-term view. As an asset allocator, it means we have another dimension to assess diversification, and linked, means we can tie in broader themes that complement a more focused strategy. Ultimately, the approach enables us to use all the tools in our toolkit for our aims, from grantmaking through to our endowment, understanding and progressing our impact.

We believe, too, that this works beyond our own context at Esmée. Every investment has an impact. We can invest to intentionally improve the world around us, and an effective approach to do this is by theme. Find the themes, and the areas within those themes, where improving the world also drives value. And then find the investment opportunity within it – find the best fund, company, project to deliver that financial and impact value. This does not mean every investment should fit a theme perfectly nor all be specialists, but it enables asset level assessment of contribution to the theme and informs portfolio level allocation.

What this looks like in practice for us

Across our impact-first and impact investing allocations, we have three strategies to support our mission: Investing in Our Natural World, Investing in a Fairer Future, and Partner in Place. For each of these, we identify themes.

We have two approaches to guide investments in these themes:

  1. Market deep dives, where we assess aligned current market opportunities
  2. Developing from within, where the Foundation's strategy demonstrates a market gap

Deep dives enable us to research the intersection of investment opportunity and impact. This includes assessing macro drivers, impact risks, position the role of investing at market rate return with the impact we want to see, and where this capital could flow. There are many areas where the right tool in our toolkit is grant and impact-first investment. But there are also areas where we can deploy capital at scale with conviction, where aligned impact is driving the financial return opportunity. These deep dives are to find those opportunities.

The food system is where we have started. Albeit not a small starting point, given it is a system on which all our lives depend. We have seen significant capital flow into the energy transition. Could the food transition be next? Through our nature friendly farming priority at Esmée, we have a clear vision for the food system in the UK. It is the challenge of this deep dive to explore how investment at scale helps get us there.

To give this deep dive context, below is our Investing in Our Natural World’s relationship from Foundation strategy (impact goal) to theme:

Investing in Our Natural World
Impact goal Theme
1. Preserved and improved
species health and habitats
• Sustainable forestry
• Circularity
• Nature-based solutions
2. Sustainable and ethical food • Sustainable food and agriculture
• Blue economy
3.  Clean and healthy freshwater • Nature-based solutions
4. Addresses the causes and
impacts of climate change
• Renewable energy
• Decarbonisation

From these themes, we developed a matrix of asset class allocation and thematic allocation, presented below. We have greyed out the asset classes outside of the scope of the deep dive report for clarity.

Figure 1 shows the sustainable food and agriculture theme, and Figure 2 zooms out to present the broader framework for Investing in Our Natural World, which will form the basis of future deep dives. We have one of these matrices for each of our three strategies.

Let us know what you think

The reason for sharing this approach and our deep dives is that we hope this is useful for others too. We hope it leads to action, as a practical resource – we’ll share our journey and our portfolio as we practice what we preach. And we hope it leads to collaboration around themes. If this is useful, we’d love to hear from you so that we can bring our collective capital and expertise to bear, and we are keen to gather like-minded investors.

So, this a ‘how to invest to…’ series, translating themes into investable opportunities by bringing together impact expertise and finance sector expertise. We look forward to sharing more as we progress.

To get in touch, email us at: communications@esmeefairbairn.org.uk.

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