Olivier de Berranger et Coline Pavot

A question of impact

Is there a place for L’Oréal in an impact fund? Many would be tempted to reply with a decisive “no”. Yet the impact of the French group is powerful and systemic. The global cosmetics leader uses its size to influence its suppliers and put pressure on its competitors. This indirect impact is as strong as, if not stronger than, the direct impacts generated by specifically designed products and services.

For a long time, L’Oréal has been committed to reducing the environmental impact of its products through ecodesign and the use of natural ingredients in its products. In 2020, it dedicated €964 million to R&D projects focused on researching ingredients, formulations, production methods and packaging that could improve the environmental and/or social impact of its products. The efforts made by this highly innovative player make it a role model, encouraging its suppliers and the industry as a whole to improve their practices. Looking at the impact of companies from these different angles allows us to support a broad range of players whose impact is key, but often underestimated. This approach also limits the risk of creating a bubble in certain popular assets.

Impact investing comes in many guises. It originated in the private equity field but is gradually gaining ground in listed markets, encouraging the redirection of investment flows towards companies that provide solutions to environmental and social issues. Its aim? to generate specific beneficial social or environmental effects in addition to financial gains. An impact can come in many guises, and appearances can be deceptive. The intention to generate a positive environmental or social impact is the starting point for any impact investment approach. Implementing this intentionality is based on an impact thesis, setting ex ante impact targets linked to precise indicators, strong governance, dedicated internal resources, etc.

This diversity represents the true wealth of impact investing. This is the path that we have chosen at La Financière de l’Échiquier, as a pioneer of impact investing in listed markets since 2017. We look for additionality with our two impact funds, i.e. a specific and direct contribution that enables investee companies to raise the net positive impact generated by their activities. For LFDE, this specifically means acting as long-term shareholders in investee companies, engaging in continuous dialogue with them. The key factor when managing any impact fund is additionality; that desire to go the extra mile, which turns a responsible investor into an impact investor.

Our strong intentions are backed up by action, and integrated into the remuneration scheme of the managers of our impact funds. A significant part of their remuneration is now linked to achieving impact targets, an approach verified by independent experts. This initiative is currently unique in the listed segment, and ensures an alignment of interests which we believe is crucial for the common good. Measuring the impact of investments and of the fund is crucial for any impact investor. This measurability enables us to be more transparent about the materiality and reality of our clients’ investments and means we can track the progress of our impact goals. We have therefore just published the third annual impact report of Echiquier Positive Impact Europe and formulated a detailed and rigorous impact policy. We owe it to our clients and partners to combine financial performance and impact. As Tolstoy said, “Everyone thinks of changing the world, but no one thinks of changing himself.” And what if impact investing could change the world, whilst still growing your savings?

 

The funds mentioned are mainly exposed to the risk of capital loss, and equity, foreign exchange, and discretionary management risk.