Investing for sustainability impact will transform capital allocation
By Jonathan Rogers
Swimming through the acronym-laden waters of the environmental, social and governance (ESG) landscape involves an often irritating thrash through that overwhelming thick alphabet soup, but it behoves anyone with a vested interest in the topic to become effortlessly familiar with all the letters and what they stand for.
The latest to rise to the surface is IFSI – investing for sustainability impact. At first glance, this acronym might seem like another term that describes ESG. But not so fast. When you break it down into the two constituent parts that make it up – instrumental IFSI and ultimate ends IFSI – you uncover the components of a dynamic that seems likely to power the unfolding ESG revolution in the coming years.
This dynamic will be driven by the behaviour of investors and the attendant impact of this behaviour on companies and government policy-making. In simple terms, this dynamic is bottom-up rather than top-down. There are two motivations within IFSI. One is the targeting by an investor of sustainability goals in order to realize financial returns. This is instrumental IFSI.
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