Investing in Impact A bold, patient journey towards sustainable, inclusive development
Rochus Mommartz CEO
Navigating through the complexities and potent potential of impact investing, Rochus Mommartz, CEO of responsAbility, sheds light on the powerful intersection of sustainable development and finance. With a pioneering spirit and a 20-year journey influencing change across emerging
markets, responsAbility has carved a path where private capital contributes positively to inclusive development and climate action. In this interview explore the challenges, triumphs, and forward-looking strategies of utilizing investments as catalysts for meaningful, global change.
What motivated you to enter the world of impact investing?
Rochus: Impact investments, as we understand them, present an opportunity for private capital to make a positive contribution to inclusive development. That is very powerful.
How does impact investing work?
In short: investments with attractive returns that positively contribute to real-world challenges. Or in other words, investments that have a well-defined development purpose.
Once the underlying problems of people on the ground in emerging markets are understood, e.g. the lack of access to reliable, clean energy, companies with sustainable business models that address those needs have to be identified. They are the basis for successful impact investments.
How do you ensure that the impact is sustained and meaningful?
Impact will only emerge when local businesses are linked to investors who enable them to grow, empowering the people on the ground to prosper. For this to be successful, long-term business relationships are crucial. Impact cannot be achieved with a short-term mind-set.
Why is there still a reluctance to invest in impact?
We must differentiate. The volume of impact investments has grown substantially in recent years. However, it’s still relatively small compared to the overall financial market and needs to be scaled up significantly to achieve more relevant progress on SDG achievement.
What are the reasons for lack of scale and acceleration?
One reason is that a very large group of investors - retail and private banking clients – often don’t have access to these investment opportunities with an emerging market focus due to the illiquidity of underlying assets. Another reason is that private market growth is structurally less scalable than public market asset management.
What challenges lie ahead?
A key challenge in impact investing is to do two things at the same time which seem to be contradictors. To be patient when it comes to growth and at the same time to be bold enough to challenge and confront investors with new opportunities. This hasn’t changed over the last 20 years.
How is this reflected in responsAbility's approach?
We target very large and very relevant challenges: inclusion of more people into the formal economy, sustainable food, and the climate crisis. Each challenge can only be overcome with a combined effort. This needs the patience to bring the relevant parties to the table and the courage to structure product offerings which move the frontier. As an industry we have made progress in all three areas, but we still have a long way to go, especially on climate finance.
Do we have time to be patient about climate change?
It is important to be patient even considering an increasing pressure. Yes, we should recognize that we have little time and that we need to step up our efforts dramatically. This applies both to reducing greenhouse gas emissions and to building the resilience of nature and people to climate change, especially in emerging economies. Both private and public actors are called upon to play their part in meeting this global challenge.
How can responsAbility contribute to climate change?
Our most important contribution is to show that it is possible to scale up the financial resources of private and public actors in the field of climate finance in emerging markets. And to accelerate the underlying processes. Together with our UK shareholder M&G, we are working hard to increase the volume of investments flows to achieve greater impact in a shorter period.
How does responsAbility plan to achieve this impact in climate finance?
Our climate strategy has several components: mitigation, adaptation and access are the key objectives. On the one hand, we are promoting the expansion of renewable energy in emerging markets to enable those countries to reduce their current carbon-intensive energy mix. Equally important: energy efficiency. Energy you do not need you also do not have to produce and therefore emissions are reduced.
How does responsAbility support communities in adapting to and mitigating the effects of climate change?
We help small farmers in Latin America, Africa and Asia adapt their agricultural production to changing climate conditions. This can be done, for example, by introducing tropical-resistant seeds and more efficient irrigation systems. In addition to providing them with the necessary tools, we also offer training and workshops where they can learn new farming methods and strategies to become more resilient in a changing climate.
And finally: access to clean power. The 700 million people without any access to electricity have a right to get access. Ideally, this should be clean energy from the very beginning.
Has financial inclusion become less important at the expense of climate action?
Financial inclusion is still very important, especially in emerging markets. Unfortunately, nearly 1.4 billion people are still excluded from any access to financial services. This has huge negative economic and social consequences for families, small companies, and societies. It is again the access to basic services which makes all the difference for millions of people. Having an opportunity or not having an opportunity is a life changer. This sector will therefore remain a key investment theme for responsAbility in the coming years.
How do you balance the challenges of financial inclusion with the implications for climate change?
Looking at carbon footprints is important, but it shouldn’t be the only measure of sustainable investment. We will not be successful on the climate side if we do not recognize the need to improve living conditions of hundreds of millions of people today. That is a challenge. The discussion on “just transition” must recognize that beside the “justice” to people affected by the transition process, there has to be “justice” also for people at the bottom of the income pyramid. They have a right to prosper though this implies short term higher emissions. In the long term, however, the goal must be to support and accelerate the transition to a carbon-neutral economy in these regions as well. This transition, and the balance it requires between social progress and environmental protection, needs to be understood and supported by our investors.
How do you see the sustainable food sector in relation to impact investing?
Sustainable food is a very important sector for us. Food security, sustainable agriculture, and biodiversity conservation are critical to achieving the United Nations Sustainable Development Goals. There are many opportunities to make a positive impact in this area - from financing sustainable farms that use organic and regenerative practices to supporting companies that develop innovative technologies for growing, processing, and distributing food.
This year, responsAbility celebrates its 20th anniversary. What have been the company's biggest challenges and successes?
The biggest success has been our pioneering contribution to the development of “impact investments”, to raise investor awareness about the topic and, of course, the huge positive impact generated on a very, very large number of people in emerging markets through nearly USD 15 billion of impact investments since inception. We are therefore very thankful to all investors who made this impact feasible.
What are your ambitions for the target size of assets under management?
The size of assets under management is not our primary strategic objective. Our intention is to scale where possible together with our partners. To achieve this, we want to mobilize more private capital and thus increase our impact.
In which sectors will responsAbility grow the most?
We are growing in all three areas. This year we are seeing particularly strong growth in sustainable nutrition and climate finance. Though scaling is easier in climate finance as investor interest is high due to global climate targets. For financial inclusion, the growth may be lower in relative terms, but it could be significant in absolute terms in the coming years.
Are there any new issues you are considering?
Sure. One of them is technology. It is critical. It can help people who have been disadvantaged and excluded from basic services. Technology can bring more people into the economy. I see great potential for digital supported business models.
Last year, responsAbility won the SIFEM advisory mandate. How would you assess this?
Being selected to advise SIFEM (Swiss Investment Fund for Emerging Markets) was a strategic milestone for us. SIFEM has significant direct impact and a clear demonstration effect for private sector players. The majority of SIFEM's portfolio uses a fund of funds approach to create jobs in emerging markets, develop local capital markets and support local, inclusive market development. The next step will be to make these investment opportunities more accessible for private sector investors.
Is public capital always necessary, or is impact investing also possible thanks to private capital?
Our mission is to contribute to sustainability and inclusion through private capital. Many of our investment offerings are tailor made for the private sector investors and do not need any government involvement. There are areas where the combination of risk, return, availability of funds and impact is not yet ideal for private investors. In these cases, we partner with the public sector in what typically is called blended finance.
Is the wave of ESG (Environmental, Social and Governance) investments an opportunity or a threat?
It is an opportunity as it reflects the changing investor mind-set. At responsAbility, when we formulate an investment thesis, we start with a real-world problem in emerging markets. We aim to make investments that have a measurable positive impact on society and the environment, while also generating a financial return. ESG is a risk filter, which is essential to be fully integrated into the investment process, but which, by itself, does not contribute to positive contributions regarding the specific challenges which are tackling.
Do you see a change in investor groups, perhaps younger generations?
The younger generation often has a different perspective than their predecessors, placing a greater emphasis on sustainability and sometimes impact. It's encouraging to see sustainable investing and impact investments gaining traction. This shift in mindset gives us hope for addressing the challenges of the future.
Where will responsAbility be in 20 years' time?
It is important to us that we continue to make a positive contribution to the future. Our main task is, and will remain, to help our investors make wise and sustainable decisions among the myriad of options available. We want to continue to be a reliable, long-term partner that they can trust and rely on.