Amanda MacDonald has broad experience in investment analysis having worked at some of Australia’s leading fund managers (Perpetual, Pendal and MLC), but in her role at LGT Crestone, as the advice firm’s first Head of Sustainability, she analyses the full spectrum of impact offerings to unearth the gold standard of genuine impact opportunities for her clients.
It’s a full-service offering, which matches client needs spanning a global suite of products from ESG to impact. But in this conversation with OnImpact, Amanda focused on explaining what it takes to meet the high standards of genuine impact, and the processes she uses.
Plus, she’ll be at the Impact Investment Summit at the end of March, so you’ll be able to hear more insights live and direct.
At LGT Crestone, they believe that good investment strategies start with ESG. It’s a broadly recognised, and highly pragmatic, approach to valuing a company or asset. It’s a risk overlay that recognises a range of non-financial factors as material risk factors.
LGT Crestone’s clients engage the firm to offer financial advice, they’re led by their individual needs. Not all demand an ESG overlay, and fewer still engage with impact, but nonetheless, the specialty offering, with Amanda at the helm, ensures a range of options.
“We are of the view that any fund manager that’s not taking into account ESG factors is not considering the whole context of their investment, whether it be an asset or a portfolio of assets. We think that ESG, at a minimum, is just good investing. We want to see managers really understand the ESG risks of that investment and how do they adequately assess and price in those risks. It’s really about value creation and risk mitigation.” Amanda says.
“For us, ESG is at a minimum, best practice. And we ensure that all fund managers that we include on our approved list are at least considering it to some degree. For the labelled sustainable strategies, it must be truly integrated into the investment process for us to consider it an ESG leader.”
The sustainable investment spectrum is a broad umbrella of strategies, and beneath it there are opportunities across a diverse range of asset classes, serving a wide variety of investor types. But when it comes to impact, the range of investors is far narrower.
“For the core suite of private market impact strategies, it’s really just family offices and ultra high-net-worth individuals that have both the capital available, and the leverage to commit to impact.” Amanda says.
“Not-for-profits do show interest, but generally they don’t have either the time horizon or risk appetite. Which then ties into the frustratingly persistent myth that impact means concessionary returns; and no matter how much we reiterate over and over that that’s not the case, it still remains.”
There’s no short-cuts when you’re offering financial advice. Your reputation and your results ride on the quality of your due diligence, and when it comes to impact, there’s only limited resources to support a decision.
“We will leverage support from firms like Australian Impact Investments, we have a relationship with them. We also tap into LGT, which are a private bank with global sustainability research teams. But it’s only ever as an additional resource. I still need to write the recommendation paper, take it to the Investment Committee, get approval, all of those things.” Amanda says.
“Essentially it’s on me. I have a very thorough due-diligence process; I meet with the managers on several occasions, and I always have to understand the strategy in minute detail.”
The evolution of impact investing has been rapid and with so many different strategies, the concept of impact can mean different things to different people. Amanda has developed Crestone’s assessment model to identify genuine impact offerings, and minimise risk.
“I think the biggest thing with impact, is assessing whether experts in private equity, who have a launched a dedicated climate impact strategy, also have climate expertise. It’s quite common to find that they have no subject-matter expertise embedded in the team. My response is to ask how can you actually have a meaningful impact on climate when you have no knowledge, really, of what’s going to be useful and impactful going forward? So that’s sometimes a red flag for me.” Amanda says.
“And while that gold-standard manager is important to identify, it doesn’t suit all portfolios. We’re still trying to scale impact across our firm, and so partner with some of the largest global allocators across private markets; but there are challenges. Managers like KKR, TPG and Blackstone have dedicated impact spin-out strategies, and it’s really just a matter of digging deeper. It can sometimes be pretty counterintuitive to their corporate strategy, where they’re still holding huge amounts of energy or fossil fuel exposure, and then they’ve got these impact, spin-out strategies. They may have strong impact fundamentals within the particular product, but you have to look beyond that, to understand the organisation as a whole.”
The end result is that only a few managers make it through, to be classed as the gold standard. Those that talk the talk, but also, walk the walk. It’s about the organisation as a whole, it’s about their measurement practices, but they also need a track record to prove it out.
“Yeah, it’s really hard to make the cut in terms of what we’d expect to see for clients who want deep genuine impact. For those clients we’re looking for additionality, they want all the measurability and they don’t want concessional returns.” Amanda says.
“But even just within impact, we’ve got a spectrum of both clients and managers. We still need to have a broad suite of solutions. It’s tricky because the deepest impact strategies are private market strategies, and they tend to have very long lockup, so 10 years plus. That’s incredibly challenging for some, and certainly for most retail clients. Whereas our clients who are large family offices might have an intergenerational plan and can hold assets for a lot longer. So it’s hard to tick every single box. For genuine impact, to be able to measure it, to report it, to assess it, and to be accountable to it within a certain time period.”
The Impact Investment Summit 2023 will be held on 30-31 March at the Sydney International Convention Centre, all the details are here.