Globally, we are living in a phase of profound transformation for value creation models. We could call it a gentle revolution: changes that directly affect the way we do business and invest financial capital”.
Giovanna Melandri, President of Social Impact Agenda for Italy, on the National Advisory Board of the Global Steering Group on Impact Investment and member of the Steering Committee of the COIMA ESG City Impact Fund, is sure of this: “the period we are living in now, with all its complexities and the new needs generated by the pandemic and the uncertain geopolitical and economic situation, offers a great opportunity to talk again about a new way of interpreting capitalism, which aims to achieve greater social and environmental justice, a form that extracts less and generates more.
Giovanna Melandri, President of Social Impact Agenda
for Italy, member of the National Advisory Board of the
Global Steering Group on Impact Investment and
member of the Steering Committee of the
COIMA ESG City Impact Fund
The platform of the Impact Economy is becoming more and more solid year after year, thanks to two processes: the way the public sector is rethinking the welfare policies and the presence of a number of financial operators that are promoting new investment strategies capable of emphasising issues such as inclusion and sustainability.
The concept of impact imperative and therefore “the need for an economic/financial actor to optimise not only risk and return but rather risk return and impact becomes central”. Businesses as well as actors in the financial world with which the Human Foundation collaborates “want - as in the case of the COIMA ESG City Impact Fund - to incorporate the impact dimension into their strategies, and to do this they are equipping themselves with increasingly specific and effective assessment tools”. In the impact economy, therefore, the assessment of CEO’s performance is no longer solely based on their ability to manage risk and maximise financial returns, but also on their “ability to generate intentional and measurable social and environmental changes”.
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Impact investing is therefore composed of a series of financial instruments with the common aim of generating positive changes for communities and the territory. “The peculiar characteristics of these investments can be summarised in four macro-dimensions: the intentionality of the economic actor in generating impact, the expectation of an economic return, the long-term measurability of the social or environmental results generated, and additionality - i.e. the ability to invest in undercapitalised areas, in projects capable of responding to specific needs or problems”.
The remunerability of capital is a central point: “it can be tempting to think that this type of investment escapes the logic of financial return. Until a few years ago, this statement was partially true, and in fact one spoke of venture philanthropy or patient capital, but today the impact investing market has matured and the remuneration of impact finance instruments is aligned to the market returns”. In this changed context, a good practice for asset managers is to link part of their remuneration to the social and environmental impact results achieved.
The importance of identifying suitable assessment tools, capable of guaranteeing an accurate measurement of the results achieved, emerges very clearly. According to Giovanna Melandri, the issue of impact assessment is central because 'when dealing with this type of investment, the risk of green or social washing is real. There must therefore be third-party partners capable of measuring the value generated against the impact objectives defined ex-ante. Furthermore, it is necessary to point out that not all investments in projects that aim to achieve social or environmental objectives can be considered impactful. Here, additionality is a key issue. One example might be investment in private healthcare that targets its services at the better-off. These entities operate, to all intents and purposes, in a sphere capable of generating social impact since they provide health services and respond to the needs of a specific segment of local stakeholders. The characteristic that excludes them from the realm of impact investments relates to the lack of affordability of the services due to a pricing that is too high”. Concerning the correct measurement of the impact generated by an investment, Giovanna Melandri emphasises how “we need to move away from the financial reporting models that have imposed themselves in the post-war period and adopt an integrated reporting model” capable of providing in a single document (drafted by third parties) financial and non-financial information, and therefore relating to environmental, social and governance impact.
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These assessments are part of a historical phase that offers our country the great opportunity provided by the Next Generation EU programme funds, with which to strengthen post-pandemic recovery through innovation and digitisation: “The National Recovery and Resilience Plan is an outstanding opportunity that cannot be wasted, also in order to push public/private partnership models built on the objectives of welfare enlargement, urban regeneration, social housing, etc.”, Giovanna Melandri continues. “The challenge I see before us is finding how to use these resources efficiently and effectively. I wonder about the actual ability of some of the recipients of the resources to first contend for and then use the amount of the budget allocated to them. In fact, the situation with regard to skills within the public administration is very varied: while there are virtuous municipalities that have been able to attract or cultivate skills in the design and management of complex processes, there are others that are in great difficulty. There is a need for greater strategic connection between the different levels of state administration: central, regional and local. We are faced with a unique opportunity to equip ourselves with assessment models and tools capable of meeting the challenge of measuring the effects that the funded projects will be able to generate in the various territories; something is moving: I am thinking, for example, of the assessment models that are being developed at the Ministry of Infrastructure and Sustainable Mobility led by Enrico Giovannini.
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“Our country, although to a lesser extent than others, is nevertheless experiencing a period of growth in projects geared towards the impact economy. There are many examples: “I’m thinking of systemic players such as Enel, which with its Green Bonds has helped to create climate and sustainable finance in Italy as well. Expectations are also high for the role that Cassa Depositi e Prestiti can play in activating financial levers for business models that incorporate the dimensions of sustainability and urban regeneration as strategic growth factors”.
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And the real estate sector? “Design, both from an urban planning and a real estate point of view, is today central to designing the relationship between man and the space that surrounds him. In Italy, the design activity must be able to combine the dimension that entails safeguarding, protecting and enhancing the historical, architectural and cultural heritage of our cities. “The uniqueness of our historic centres is at the basis of the challenge related to the efficiency of the Italian real estate sector, which is being called upon, like all other countries, to achieve the nZEB (nearly Zero Energy Buildings) objective”.
MiColtivo, didactic activity in contact with nature organized by BAM
for the community
Using energy resources in a more sustainable way means attempting to go beyond the current urban model which, in many cases, arises from the assumption of having to guarantee ‘car-friendly’ cities. On the contrary, according to Giovanna Melandri, real estate can play a second relevant role in the impact revolution through the ability of operators to renew their design, production and construction processes: “I believe that there is a great opportunity for hybridisation between professionals working in the field of construction design and impact managers in designing social spaces capable of supporting community activation actions. Places where living and building are no longer distinct, and living means promoting active citizenship to multiply common assets, of both the tangible and intangible kinds”.
In this respect, certifications such as LEED & WELL are an interesting model for validating urban and infrastructure projects: “if well structured like these ones, each certification has its own relevance within the process of monitoring and evaluating a project’s ability to generate value and/or reduce negative externalities. It would be useful for all urban and infrastructure projects to have certifications of this kind,” although, according to the President, an effort is needed to integrate these methodologies with the dimensions of social change in the medium and long term.
“I believe that the current phase offers us a great opportunity to learn, all together, as a country system, how to leave behind ‘propaganda’-style proposals, and enter a season in which the issues of economic development, new welfare models, and environmental protection policies can be discussed and dealt with through the lens of evidence provided by the data collected and analysed,” and, Giovanna Melandri concludes, “the impact approach is a fundamental open data management model for this process”.
