Beta Activism is defined as Institutional Investors who look beyond trading securities and move towards evaluating investments from a systematic and structural lens. The aim is to achieve better long-term risk-adjusted returns but driving change on targeted issues to reduce overall market’s systematic risks.
Corporation plays a role in driving the United Nations Sustainability Development Goals (SDGs) and is a key beneficiary of the impact of SDGs. The market valuation of corporations today is bigger than GDP of the country. Corporations today (i.e., Nike with c.290 million social media followers) are influential enough to change perceptions.
Beta Activism is an enabler to equip companies in preparing for climate risks. Engagements with companies play a crucial role in the activism process as seen in Blackrock’s sustainability investing.
Impact-oriented companies need ask the bigger questions on why they are doing this and what impact that they are trying to generate. Companies can use evidence-based research to support implementation and measure impact.
Proper governance is a key enabler for Beta Activism, via Sustainability, Impact, and a Just Transition
Beta Activism is new in Malaysia and the early focus here should be in governance in Malaysian companies. The appointment of politicians on the board of companies is threatens good governance, and the appointment of women is still poor.
All institutional investors should collectively work towards implementing good governance process and procedures from reliable standards. Institutional investors are encouraged to be transparent and publish their voting principles and decision-making process.
Issues such as greenwashing need to be managed by proper governance, data transparency and good investor judgements. For example, ESG ratings could reflect sustainability efforts but doesn’t necessarily correlate to making actual impact.
Impact investment will eventually play a bigger role, with c.40% of funds now will be centred around impact, and not just purely financially driven.
More investors carving out strategic impact mandates, much like Dana Impak. Companies choose impact areas based on issues that they want to push for, such as Diversity, Equity and Inclusion, Sustainability etc.
Executing and measuring impact investment is difficult, and collaboration and partnerships with ecosystem players are key for this space. There are best industry practices for impact measurements readily available, and large corporations already have impact strategy and frameworks in place.
Startups could get involved in the impact investing space by (1) focusing on the additionality and materiality that the products and services provide (2) to have research and evidence as a proof of concept that the solutions are working
The 6 characteristics of sustainability and impact investing are (1) know your objectives (2) ensure sustainable and consistent commitment (3) have organisation strategy and incentives align around creating impact (4) use data, gather feedback and learn (5) collaborate with other players (6) centring equity in organization.
There are many models of creating impact with a combination of blended finance, PPP, mandated CSR etc. For example, Patagonia’s profits are committed to fight climate change and public companies in India are mandated to spend at least 2% of their net profit to CSR.