Five ways in which impact investment is like natural wine

I recently attended a roundtable on how to encourage insurance companies to do more impact investment i.e., with an explicit objective to make the world a better place.

Afterwards, I couldn’t help but reflect about all the ways in which impact investment is just like the emergence of the natural wine* phenomenon…

1.They are small but growing. Compared to the mainstream wine and investment universes, these are tiny but growing markets. There is a lot of hype, but that’s not where most of the money is.?There are advantages to being a more nascent industry though, with an emergence of innovative and agile players.

2. They can change the norms - but require a shift in tastes.?We all know the world needs to shift to a more sustainable path, and these are two of the more environmentally friendly options available to us.?And yet palettes and investment mindsets would need to adjust to become more successful and/or mainstream.?

Much how we would no longer touch wine from an age where its main merit was its disinfectant properties (while untreated water was unsafe to drink), perhaps one day we will look at the investment choices of today in wonder.

3. The label attracts some people but is off-putting for others.?For every hipster in Shoreditch, there would be a French town adamant they would either 1) never try it; 2) did try it and are not making the same mistake twice.

There remains an in-built suspicion from some asset management and end-investors alike that ‘impact investment’ could be code for esoteric and risky investment classes that are less likely to stack up economically. ?This is even though impact investment could be into established asset classes such as housing or infrastructure – or from otherwise prized grape varieties (to continue labouring the metaphor). In both scenarios, education of the end user to be able to make an informed decision is critical.

Fundamentally, for manufacturers, it remains a question of taste.?A general insurer with a short liability tail is unlikely ever to be an ideal candidate for significant long-term asset holdings, impact or otherwise.

4. There is no set definition. ?Both impact investment and natural wine can be intended to mean all sort of things in practice.?With no clear definition, the mistrust described above is partly a consequence of lack of clarity about what you are getting under these labels. ?This can lead to misplaced expectations at best, and a risk of abuse and unpalatable products at worst.

A certification process, with a clear topology of labels that are clearly disclosed may be part of the solution.?Alternatively, it could be viewed as an unnecessary hurdle on nascent producers, depending on your point of view.

5. There is room for both – in moderation…?Much how there is space for a range for viticultural approaches from traditional to organic, biodynamic to natural, asset managers and owners can consider impact investment alongside other approaches to investment.?This includes other society-conscious strategies, including shades of green investment and the role of stewardship in helping carbon-intense industries transition to net zero.?Either way, the taste (or return) is likely to continue to be the determining factor in shaping preferences, and we can hope that quality continues to improve as experience develops.

At the end, I was left with a feeling that one thing impact investment and natural wine have in common is that both offer a significant opportunity and additional choice for customers but getting the right balance will be pivotal – these will be two interesting stories to follow!?

*Not a defined term and could mean a range of things, but usually suggests a fermentation process with no added yeast, no additives and little or no sulphites.