Oct 31

Materiality – The Coffee Shop of Sustainable Investing Strate

Tonderai Leonel Njowera
Independent Sustainable and Climate Finance Consultant
Mosi Partners

Each individual or organisation holds different understandings and views about sustainability. Thus, the meaning of environmental, social and governance factors differs. Over and above this, different players have unique areas they are keen to focus on at any one given time, giving rise to divergent priorities for impact investment, informed by divergent goals. From an organisational perspective, this might give rise to delays in effecting-, or even cancellation- of potentially high impact investments, seeking either environmental or social impact or both. Also, there is no doubt that sound corporate governance and compliance are key, albeit with different complexities, based on jurisdiction, size of entity or sector of investment. Resultantly, the first step is to harmonise these varying views in a “materiality coffee shop.”

It goes without saying that various factors affect the materiality of core issues, though the fundamental starting point is to understand one’s individual motives for sustainability, then aligning them with stakeholder needs. These stakeholders will be affected by the impact of high-level investment decisions.To assist the harmonisation of material issues, leading to the development of different sustainable investment strategies, the available basic frameworks overarching the ESG concept include the GIIN IRIS,UN SDGs, the UN Impact Radar, and the UN Principles of Responsible Investment. These frameworks and others help to define similar underlying characteristics or themes of potential investment issues.

After defining materiality, an individual investor, or a trust can invest from a thematic based view.Instances include generalized climate adaptation focused investing, climate mitigation investing, healthcare investing, education. Deeper than this is bringing together best in class projects or geographies.Moreover, an investor can also zero into more specific issues, companies or projects, where one seestheir most sought-after impact goals being realised, as well as understanding the specific core metrics defining successful impact, beyond the financial returns. For example, plant seed banking, smart agriculture, student accommodation, water supply and sanitation, microfinance, household or utilityscale solar energy, as well as specific geographies of interest. The list is endless and is informed by an individual’s specific needs, anchored on sound stakeholder engagement, hence materiality.

However, it is also very imperative to realise that at times, there is an urge to overstate impact, due to personal biases. This is the detrimental case of greenwashing or impact washing and must be avoided at all costs. Moreover, there are also tendencies to underestimate the potential positive impacts brought about by some investment. Through collective materiality assessments, these biases can be identified, and true impact can be analysed. Hence, when making collective investment decisions, for example as family trusts or corporates, it is key to meet at a common place, where collective material issues are brought together, establishing consensus and harnessing collective efforts for greater, more meaningful impact through sustainable finance and investment.