While the pandemic delayed project work and complicated targets for Responsability last year, it's no reason to abandon sustainable goals altogether, CEO Rochus Mommartz tells finews.com.
Rochus Mommartz, most financial services firms have quickly built up a range of ESG products, though not everything is quite as sustainable as it is touted. Is the industry about to come for impact investing too?
Yes, and we see – as with ESG and «greenwashing» – an increase of so-called «impact washing». You may be surprised that I don't view the entrance of new market participants only unfavorably. The increase of impact washing is emblematic of the rising interest by investors in the impact investing space.
What do you deduce from that?
Investors want more from their money than just returns. Traditional wealth and asset managers may be tempted to offer their clients something with «impact» on the label, but whether it is a genuine impact investment or not is another matter entirely.
«A portfolio of listed stocks may contain little impact investing but still be sustainable»
What Responsability began 20 years ago has hit the mainstream. Fundamentally, that's a good thing.
...but always with question marks too.
It's positive that the asset management industry is taking on the issue. It bears mentioning that impact investing in private markets – private debt or private equity in less developed nations where access to capital is restricted – already has a larger impact from the get-go than buying and selling listed securities.
Could you elaborate?
A portfolio of listed stocks can hardly contain impact investments, but it can be sustainable.
Is it more difficult for Responsability to distinguish itself from the mainstream then?
No, our approach already distinguishes us: our investments in developing countries are so to speak hand-picked. We can't put out a portfolio together from securities that already exist.
Responsability invests primarily in developing nations, so those at the lower end of the income pyramid, where investment is effective in a favorable impact on the well-being and income of those people.
How do you illustrate this to investors?
We of course need to deliver exact reporting, which has been a part of Responsability's DNA since the beginning. We're continually developing the methodology behind it. Measurability is a challenge in impact investments. Since we've traditionally been strong in climate issues, this area of reporting is key for us and quite developed.
«Social aspects are difficult to pin down in measurements»
Carbon dioxide reduction is measurable and easy to illustrate – another advantage. By contrast, themes in the social aspect are more difficult to measure. We need to be realistic and also balance how good of quality our reporting here can be against how much generating it costs investors against their returns?
How was 2020 – the year of the coronavirus – for you?
We saw a massive drop in economic projects partially financed by Responsability, meaning in small businesses in less developed countries. At the same time, investors were very hesitant. We returned to more normal levels in the second half on investor flows and also experienced much stronger interest from potential investors.
We're satisfied with our year-end returns; we wouldn't have expected to say that last April. The fact that our investments proved resilient is an especially nice aspect for our clients.
What about your assets under management?
Practically unchanged during the year. Two favorable things: investors realized that impact investing is relatively robust in crisis. And many investors didn't pull their assets despite the risk – because they were mindful that it would be the worst possible moment to do so in terms of the desired impact.
What about returns?
They were satisfactory and even good for a year with a major event like the pandemic – in terms of private debt. In private equity, our portfolio is even better, but I'm referring here to net asset value, not realized returns.
Responsability was directly affected by the pandemic, cutting jobs last summer.
We acted because we had a lot of uncertainty and we could also see that a lot of 2020's projects weren't going to happen. That's changed since then. We're operating in a very stable environment and in an interesting phase where we see a lot of opportunities.
«Small business was hugely hurt by the lockdown, while larger companies did fine»
The economic impact of the pandemic accentuated the distribution from low income to higher levels. In other words, small businesses suffered hugely during the lockdown, but huge multinational companies did fine.
Are you seeing more demand for financing?
You're asking about a phenomenon that is common in highly developed nations in particular and driven by capital markets and technology companies. That doesn't directly translate to the developing nations that we're active in.
Why?
The shift in wealth that we observe globally isn't happening to the same extent.
Why not?
Because many of these nations are still strongly shaped by agriculture and the informal economy and these two produced during the lockdown.
The trend of ESG and impact investing enjoys a rush of interest thanks to the United Nations's sustainable development goals. Do you believe that reaching them is now further off due to the pandemic?
No. The SDGs are already very ambitious – rightly so. Of course, the lockdown led to projects and complicated certain goals. But to take the coronavirus as an excuse to distance ourselves from these goals would be completely wrong.
«More banks are approaching us»
In climate change in particular the clock is ticking – we as impact investors have a duty to contributed to reaching these goals.
Are you receiving more interest from banks because they need to fill the gaps in their ESG and impact offerings?
Yes, more banks are approaching us. The requests are mainly for unlisted product or investment solutions with a clear impact for the climate or social issues. «Responsability hat eine Niederlassung in Oslo»
Banks are noticeably a lot more sophisticated on sustainable and impact themes and more sensitive to green or impact washing now.
How large is your banking partner network?
From Switzerland, Germany, the Benelux countries, and Scandinavia. Responsability has a branch in Oslo, and we have a series of banking partners in the Nordics.
Responsability is still perceived as a microfinance manager...
...which we weren't solely even at the beginning. We covered various impact issues in a relatively agnostic way, like in healthcare or media. About five years ago we concluded that we should focus on areas with ample pipelines of potential projects. Those are currently climate finance, sustainable farming, and financial inclusion. We have private debt and private equity products in these areas.
Rochus Mommartz has been CEO of Swiss asset manager Responsability Investments since 2016. The boutique specializes in emerging market investments. Mommartz began his career as a consultant and worked in more than 40 less developed countries designing and implementing regulatory frameworks for financial intermediaries and building microfinance and small business banks from scratch. He has been with Responsability since its founding in 2003 and launched the equity investments. He studied economics at the Freie Universitaet of Berlin.
