SDG-related investments: An overview of Phenix Impact Database

Impact Investing goes beyond negative screening and using Environmental, Social and Governance (ESG) integration to reduce harm or avoid risks, generating intentional positive impact. Phenix Capitaldefines impact investing as investing with the dual mandate of financial returns and positive societal or environmental impacts, with the notion of measuring the positive and negative impact of investments, ensuring both intentionality and additionality among these.

Moreover, Phenix Capital Group aims to enable the allocation of capital from institutional investors towards social and environmental solutions while supporting the 2030 Sustainable Development Goals (SDGs). For this matter, Phenix has developed a proprietary Impact Database to provide investors with access to and intelligence on the impact fund market opportunities available to them, mapped to the SDGs.

Phenix Capital’s Impact Database features impact investing funds offering solutions for global social and environmental issues whilst prioritising financial returns. This category of impact investments can be referred to as financial-first impact investments.

Three main variables have been central to sourcing the investment opportunities listed on the database: funds considered have a clear impact proposition, institutional quality and track-record, and target market-rate returns.

SDGs and Impact themes breakdown

Phenix Impact Database has been tracking and mapping the capital commitments towards the Sustainable Development Goals (SDGs) since 2015 of over 2,050 funds. The following analysis differentiates historical trends (from funds launched before 2021) from current trends (from funds launched since 2021).

Historically, the most targeted SDGs were SDG 13 Climate Action, SDG 7 Affordable and Clean Energy and SDG 9 Industry Innovation and Infrastructure.

As shown on the graph below, historically and currently, SDG 13 Climate Action has been the one receiving the most capital across all asset classes. Interestingly, SDG 11 Sustainable Cities and Communities and SDG 12 Responsible Consumption and Production have been on the back of historical capital commitments but are tied in 3rd place when it comes to current capital allocation. Thus, currently, the top 3 most targeted SDGs are SDG 13, SDG 7 and SDGs 11 and 12 tied in 3rd place. The market is moving more capital towards the SDGs directly related to climate.

Looking at how investing towards the top 3 most targeted SDGs is done in practice, the underlying funds have historically targeted investments in climate (DEF), renewable energy and social infrastructure impact themes. By climate, Phenix considers investments in solutions aiming to tackle the investment gap to meet the Paris Agreement targets. By infrastructure, Phenix considers investments in assets focused on social, healthcare, education and energy. However, there is a shift in targeted impact themes when looking at funds launched in 2021 and 2022. Currently, Cleantech is the most targeted impact theme, receiving the highest amount of capital commitments.

By Cleantech, Phenix considers investments in the innovation and development of technology-related solutions that contribute to a low-carbon, net-zero economy, such as clean energy sources, energy efficiency and carbon sequestration.

Currently, investments in Cleantech sum more than 17 billion euros, followed by investments in the Renewable energy impact theme, with more than 16 billion euros, and climate with more than 15 billion euros of capital committed. It shows the current market preference for climate-focused investments.

The following graph shows the climate-related SDGs that have raised the most capital, broken down by the most targeted climate-related impact themes mentioned above. We can observe once more that by SDGs, Cleantech is the impact theme that is raising the most capital, followed by renewable energy. Historically, renewable energy has been the most prominent one. Additionally, circular economy is raising more capital than historically, especially towards SDG 12.

Asset Class Breakdown

Phenix Capital’s Impact Database also categorise funds by asset class, keeping track of public equity, private equity, infrastructure, private debt, public debt, real estate, farmland & cropland, timberland & forestry, fund of funds and hedge funds.

Historically, public equity funds are the asset class with the highest capital committed, over 170 billion euros. Most of the public equity funds listed on the database were launched before the pandemic and are bigger in size when compared to other asset classes. Historically, the top 3 targeted asset classes are public equity, private equity and infrastructure, summing almost 400 billion euros in capital commitments.

Currently, there has been a shift of asset class focus, with private equity having more than 20 billion euros in capital commitments in 2021 and 2022. Therefore, it is possible to see that the most targeted impact theme, Cleantech, is directly linked to the private equity asset class. Currently, the top 3 most targeted asset classes are private equity, infrastructure, and public equity.

The most targeted asset classes have historically targeted SDG 13 and SDG 7. However, historical data shows that more listed funds were targeting SDG 9, whereas currently, in 2021 and 2022, more funds are targeting SDG 12 and SDG 11, with private equity taking the lead.

Markets breakdown

Finally, there has been a decrease in funds targeting emerging markets, and capital allocation has shifted towards developed and global markets. Historically, for developed markets, the most targeted region was Western Europe, and currently, it has shifted towards North America. For emerging markets, besides climate being targeted, SDG 8 and SDG 1 were also a priority for the region; however, currently, less capital has been raised towards those areas.

In conclusion, in line with the commitments of COP26, it is possible to see that more funds have been pledged towards net zero. In addition, there is an increase in investors’ appetite towards climate investments. In any case, the investor community must have in mind that other impact themes are just as essential, and that capital should be allocated towards them as well.

 

Authors:

Viviane Cavalcanti – Event Programmer and Content Creator, Phenix Capital Group

Arnau Gil, CFA – Director, Investment Consulting and Data Team, Phenix Capital Group

Maria Gil – Analyst, Investment Consulting and Data Team, Phenix Capital Group

Alexandre El Aiba – Associate, Investment Consulting and Data Team, Phenix Capital Group