Impact investing manager BlueOrchard is to launch its first Ucits fund, the Emerging Markets Impact Bond fund, after it has been granted a Luxembourg asset management license by local regulator CSSF last June.
The fund aims to fill gaps in social development financing by investing in selected frontier and emerging markets corporate bonds including quasi-sovereigns with significant impact activities.
Speaking to InvestmentEurope, BlueOrchard’s chief executive officer Patrick Scheurle says this first Ucits fund seeks to meet client demand for liquid impact investment solutions.
Impact investing’s main challenge has been the education of investors for several years, acknowledges Scheurle, who terms “totally wrong” the common belief investors have to give up returns to achieve something good with their money.
He explains that in addition to the lack of liquidity in impact investing, qualified and institutional investors must be convinced by the return potential of the asset class whereas the issue for retail investors dwells in the lack of investment products.
Also the confusion of impact investing with ESG and SRI complicates impact investing managers’ job in Scheurle’s view. He insists a difference needs to be made between ESG, SRI on the one hand and impact investing on the other hand.
“Impact investing means that you aim for actively making a difference either socially or environmentally. You achieve this in a measurable way. ESG and SRI funds deal more with exclusion, their impact is not really measurable and their aim is not to achieve a positive difference as impact investing funds do.
“As a risk to the industry, we see a lot of players, existing or new asset managers, with no experience or expertise in impact investing that claim to do impact investing,” Scheurle argues.
BlueOrchard’s CEO suggests that a number of institutions sign up to an initiative or produce “good action” reports in order to gain positive publicity but that in the end only action on the ground matters in the impact investing space.
“It is the responsibility of the media to make the difference between what is greenwashing and what is not, and to help the public to form their opinion,” he adds.
Labels are another way to help investors in Scheurle’s view since high quality standards are required, quoting the example of LuxFlag.
Climate change help
According to BlueOrchard’s CEO, the overall key risk in impact investing remains the political risk, which he assesses elevated in Africa even though a number of countries like Kenya have set up an investment-friendly environment.
Scheurle outlines that the company’s diligence starts with a country report analysis of 50 pages summing up but not only the state of the political and legal environment as well as the status of the local central bank whether it is independent or state-controlled.
“When we feel comfortable with the country, we look at individual investments. We pursue our research and then narrow it down to a few cases. Due diligence is conducted during three to five days on the ground the same way auditors would look at any company. This results in a rating for each investee,” explains Scheurle.
BlueOrchard’s CEO says that the firm’s funds are invested across a large number of sectors and themes among which climate change and energy transition.
“They are two types of projects in the climate change trend, these mitigating climate change through renewable energy/efficient energy projects and these which are rather focused on climate adaptation as lots of damages have been done already and natural catastrophes will be more frequent and severe. We have to help frontier and emerging markets countries on this as they are the most vulnerable,” pinpoints Scheurle.
He highlights the Paris agreement reached during the COP21 in December 2015 has for the moment resulted in a lot of talks but not much actions. Action should be taken at a city level, not necessarily at a country level for Scheurle.
Regarding the withdrawal of the United States from the Paris agreement in June 2017, BlueOrchard’s CEO says the country is still the largest contributor to the Green Climate fund paradoxally as some $3bn were poured into it by the US government shortly after Trump was installed as US president.
He adds that the US’s withdrawal has spurred efforts in other countries to tackle climate change issues.
BlueOrchard had invested over $5bn across emerging and frontier markets as of June 2018.