The outcome of impact investing is impossible to measure on an industry standardised basis, an expert has warned.
Speaking at the Tisa Annual Conference yesterday (December 3), Jill Jackson, managing director of The Big Exchange, said there was currently no way to measure the impact of "impact investments" due to the complexity of having different companies and differing consumer wants.
Impact investing, the latest "value-aligned" investment process, is when investments are made with the intention to generate positive, measurable social and environmental impact alongside a financial return.
According to Ms Jackson, the method allowed people to see the positive impact they were having on the world through their investments.
But the industry cannot currently provide a "standardised measure of impact", Ms Jackson said, as judging the impact of an investment required in-depth analysis and an understanding of the investor's hopes for the investment.
For example, Unilever could be described as a 'bad' impact investment because of the extent to which the company uses single-use plastics. However, the company also has plans to reduce its usage of plastic, meaning an investment in the company could have a big impact and therefore be a 'good' impact investment.
Ms Jackson said: "It's a really difficult question as it's very difficult to automate."
She gave the example of the Aberdeen Standard Job Opportunities fund, which invests in Manchester Airport. Although investing in an airport was seemingly not a "green choice", the fund's purpose was to create jobs in underdeveloped areas and therefore was "impact invested" in people.
Some groups have started to address this problem, however.
The Big Exchange, which is set to launch an impact investing platform in the new year, measures the impact of funds and "tests" the investment opportunity, only allowing funds that pass its test to feature on the platform.
It has also created a rating system, based on the UN's Sustainable Development Goals, which awards gold, silver or bronze ratings depending on how much positive impact the funds have.
The platform will also show whether the fund impact invests in the planet or people.
The Big Exchange, which has been developed with 11 asset managers, will have 38 funds available at launch but the firm hopes to grow the number of portfolios on the site over time.
Meanwhile Ms Jackson thought transparency was key for ethical investing. She thought the industry needed to strip jargon and non-standard terms out of the information it provides on such investments.
She said: "We’re trying to simplify the way people understand the impact investments have. There [is] a lot of really in depth impact investing out there but it's unrealistic to expect investors will have that level of knowledge."
Other transparency issues included greenwashing - where a fund purports to be 'greener' than it actually is - and more information around workplace pensions which will be the biggest investment many consumers make.
Ms Jackson also thought the industry needed to promote impact investing for financial returns as well as for ethical reasons
She said: "Historically it's been the view that if you invest with purpose you lose some return.
"A global investment impact network report showed 64 per cent of managers have identified achieving target financial returns as a very important driver of demand for impact investments.
"We should not ever lose site about it being about financial returns as well because we do a disservice to it otherwise. "
Portfolio performance of impact investments overwhelmingly meet or exceed investor expectations for both social and environmental impact and financial return."
imogen.tew@ft.com
