Responsible investment is gaining ground with institutional investors, according to AllianzGI. For many of them, it’s no longer just a question of choosing financial investments on the basis of their profitability, but also taking account of their social and environmental impact.
In a world where private savings can play an essential role in wealth creation, private debt should also be favoured and considered as a sustainable investment solution.
Very often, the success of private markets is measured only by financial returns. AllianzGI’s new strategy, called Impact Private Credit (IPC), is based on a financial return objective in line with market standards but with the addition of an extra-financial objective, “impact” In other words, the team also wishes to approach this asset class with a more inclusive notion of performance, by also taking into account a measure of the positive environmental and/or social contribution of the investment.
Success for a first strategy
Allianz Global Investor’s first capital raising was a success, with €560 million raised from institutional investors in an initial round. “We were pleasantly surprised by the positive response and high demand. Awareness of this issue, which gained momentum during the Covid period, is not waning, and I would even go so far as to say that it is continuing to spread among institutional investors, who continue to demand it. We hope and expect that our new initiative will be a first step, and that other colleagues will follow suit and expand this line,” explains Alexandra Tixier, Senior Manager of IPC AllianzGI.
Three key themes
The capital raised will be targeted at small and medium-sized businesses with EBITDA of between €5 million and €15 million. These companies must be located within ‘geographic’ Europe. After passing through the filter of a conventional credit analysis, the investment team carries out an impact quantification analysis using its ‘dedicated impact’ experts. If the credit and impact due diligence is favourable, these companies will benefit from a loan, granted by AllianzGI’s Impact Private Credit team, with a term of around 7 years.
The sine qua non condition is that the company’s activity, via its products and services, must intentionally offer a solution to one or more of AllianzGI’s three impact themes: climate change, planetary boundaries (development of the circular economy, sustainable transport, sustainable food and agriculture, reduction in water and energy consumption, waste and pollution management, etc.) and inclusive capitalism (solutions enabling equitable access to housing, education and quality care, etc.).
Here’s an example…
To illustrate this better, here is an example of a company that could have been included in the strategy selection (Impact Private Credit): a company that produces an irrigation solution that reduces water consumption in the irrigation of land used for cultivation and optimises production yields. “An important point to bear in mind in our analysis and quantification process is that there is no strict, standard definition of impact measurement, hence the need to have a robust and transparent impact management framework and to be rigorous and attentive when defining the impact of a project or company. With and thanks to the close collaboration of our Impact team and its expertise, this measure is better understood,” explains Alexandra Tixier.
Choosing an area as large as Europe gives you access to a greater diversity of opportunities. It is interesting to see that the ‘impact’ themes can be more or less important from one country to another. For example, a company operating in the health sector in Great Britain, which, among other things, would reduce waiting times but also promote equitable access to quality medicine, could make a greater positive contribution than if it were located in another European country where the gap between the public and private medical worlds is less wide.
This IPC strategy will support the development of companies that are leaders in terms of impact. It’s also a way of doing your bit by supporting solutions to the challenges facing our planet.
