The GIIN initiative is working with PayPal (NASDAQ:PYPL), the TELUS Pollinator Fund for Good, and the VISA (NYSE:V) foundation to help corporations connect financial assets and capabilities with impact investing practices.
- The global impact investing network’s (GIIN) corporate impact investing initiative seeks to improve corporate disclosure and boost impact investing.
- Collaborating with impact investors via the initiative will provide companies with impact investing alternatives, as well as insight into business opportunities.
- Aligning nearly $4 trillion in cash held by US companies with impact investing objectives can address many of the global environmental and social needs.
The rising appeal of impact investing is putting pressure on companies to improve their ESG disclosures. Tools being developed in conjunction with impact investing NGO the Global Impact Investor Network (GIIN) may help companies with this, while also providing impact related opportunities for investing balance sheet cash in line with environmental and social commitments, like the UN Sustainable Development Goals.
While the programme has launched with three core members, the initiative is open to all and other members welcome to the multi-year effort. In the longer term, the hope is that this will help mobilise capital and expertise to arrive at sustainability solutions.
The importance of aligning corporate capital with impact
As companies begin including double materiality disclosures the hope is that they will find impact investing opportunities to invest in themselves, which could mobilise the $3.83 trillion in cash held on US corporate balance sheets. This is according to a 2021 analysis of the US Federal Reserve’s quarterly flow of funds report by treasury management consultancy the Carfang Group.
The huge impact of corporate cash was also highlighted by the 2022 publication of The Carbon Bankroll: The Climate Impact and Untapped Power of Corporate Cash, jointly published by the Climate Safe Lending Network (CSLN), The Outdoor Policy Outfit (TOPO) and BankFWD.
Aligning balance sheet cash, or cash held at bank, could have a significant impact on carbon emissions overall. In one example, Google’s investment related emissions would increase its carbon footprint by 111%. The 13 largest companies (by cash holding) on the S&P 500 hold over $1 trillion in cash and investments. If those funds were aligned with a net zero trajectory, it would have a massive impact on the realignment of capital overall.
Uniting investor and corporate views on investing
As a champion of global impact investing, the GIIN aims to facilitate investment in challenging social and environmental issues. It provides investors with tools, education, and forums to exchange knowledge and resources, and is supported by corporations and philanthropic organisations comprising a network of 400 members.
The corporate impact investing initiative is its latest to help lower barriers to impact investing, and builds on earlier reporting and performance initiatives including its IRIS+ platform with impact performance benchmarks, along with its COMPASS methodology.
GIIN is looking at its latest initiative to help it expand on these resources, and build new tools for companies to use in assessing their own impact and that of their investments. It expects to publish the findings of its study of corporate investing sometime in 2023.
Double materiality lens may spur further collaboration
Using ESG analysis solely based on financial materiality only looks at risks to the company being analysed for investment, which is being seen by many as incomplete from a sustainability investment perspective.
The concept of double materiality is increasingly being looked at from the perspective of the financial and non-financial impact a company’s operations have on the environment and society, in addition to their impacts on the company.
A focus on double materiality initially stemmed from investor focus on societal outcomes, and the role that their investments can play in achieving the UN’s Sustainable Development Goals (SDGs).
As companies look to improve their ESG scores, by reducing their carbon footprint, they may also look at embracing green technologies, or circular economy principles, which can also have a positive impact that their goods and services have on the environment and society.
Collaborating with companies who are leaders on sustainability within a sector or industry, or within the context of a value chain, can help more companies disclose and improve their impact footprint.
Doing more with balance sheet cash than buying back shares
US companies have been increasing the cash held on their balance sheets, which has concerned investors, who would like it returned as dividends or put to productive use. Major reasons cited for this hoarding are global economic uncertainty and taxes.
Besides hoarding cash, US companies have actively bought back their own shares, justified as means of boosting shareholder value. In 2021 S&P 500 companies bought back $881.7 billion of their own stock, an almost 70% increase over 2020.
While domestic cash holdings by US companies have been typically earmarked for R&D and capital expenditures, taxes have been a major reason for US companies to stockpile foreign cash reserves. Widely varying tax rates (7% in Bermuda, 26.5% in France) has given corporations strong reason to keep their profits offshore.
The two-pillar solution by the OECD in October 2021 appears to ensure that multinational enterprises will be subject to a 15% minimum tax rate from 2023 onwards. The deal was agreed by 136 countries, representing over 90% of global GDP, and could reallocate upwards of $125 billion to countries worldwide.
A study by the Kellogg school at Northwestern University found that foreign cash holdings were increasing the faster than domestic ones, and in particular for US companies who trade in non-physical goods like Alphabet (NASDAQ:GOOG), Apple (NASDAQ:AAPL) and Microsoft (NASDAQ:MSFT).
GIIN is now trying to recruit more US companies into its initiative. By doing so, it is also providing corporates with the means to improve their own sustainability footprint while giving them the right reasons to invest their trillions in balance sheet cash.