Impact investing has enjoyed a surge in demand from investors over recent years, particularly from those who are looking for investments which potentially offer long-term returns whilst delivering a positive environmental impact.
In the years that we have been tracking the impact metrics of our investments, there has been a marked interest from our clients in understanding where their money is going and what the positive effects are of these investments.
Savvy investors increasingly want to understand the link between the investments in the company stocks that they hold and the environmental outcomes of their business activities. In a nutshell, “Show me the good that my money is creating.”
Investors may have unique requirements in terms of what they expect their investments to deliverAs interest in measuring impact has grown, techniques and methodologies have proliferated. This is exciting, but it has also led to growing confusion and questions on what these numbers really mean.
Investors may have unique requirements in terms of what they expect their investments to deliver.
For some, investing with their conscience will mean avoiding certain stocks, for example so-called “sin stocks” like tobacco or gambling companies, on moral grounds.
Others will be seeking the opportunity to invest in environmental solutions such as water treatment sites or plastics recycling. This means the lines have become increasingly blurred when it comes to working out what impact investing is and how we measure it.
This poses a significant challenge for intermediaries who are responsible for managing investment solutions for their clients and are faced with an increasing number of products but with no single industry standard or criteria by which to measure the impact of these products.
It has also led to a rising danger of corporate or investor “greenwashing” or the more recent “rainbow washing”, related reporting around the Sustainable Development Goals.
As a result, delivering meaningful impact reporting is a complex process that requires specialist expertise to collect the data, scrutinise and understand it. Then, most importantly for intermediaries, present it clearly and simply, linking it back to the investment objectives of the product while aligning with the client’s principles.
The key to reporting impact metrics is to present the data in a way that is meaningful and accessible to investors but, most importantly, directly aligns with their principles.
Impact investors want to make a difference and they will have ideas unique to their own experiences about where their money should go and what they want it to achieve, in terms of real, tangible change.
If a client is concerned about the climate crisis and wants to ensure that their investment is working towards zero carbon emission goals, then a meaningful metric would need to show how their money has directly helped to avoid carbon emissions versus the current baseline economy.
This may seem obvious but, with so many companies reporting impact metrics today, it is important to find an investment product that can deliver clear metrics which also correlate with the investment philosophy of the fund manager and the impact focus of the client.
With no single industry framework to follow, one size really does not fit all, given the breadth of the impact investing choices available to them.
The feedback we have received from intermediaries and clients is that they want impact data which reports a direct link between the money invested and the environmental outcome. As an example, each year we report quantifiable data on four environmental outputs which relate directly to our philosophy – to invest in companies benefiting from the transition to a more sustainable global economy.
The metrics we report include:
- renewable electricity generated
- water treated, saved or provided
- materials recovered/waste treated
- net CO2 emissions avoided,
As demand for impact investing from clients continues to grow, there are key questions for intermediaries to consider.
First, intermediaries must decide what their client actually wants from their investments in terms of positive impact, whether this be an interest in investing in a particular environmental solution or avoiding certain stocks for moral reasons.
They also must assess whether the client’s current investments align with these needs and how easily these needs can be met. And finally, can the fund manager really provide evidence of this through clear, specific, and quantifiable data?
Meg Brown is executive director, marketing and business development at Impax Environmental Markets
