What is impact investing?
Impact investing means investing in companies that aim to deliver meaningful societal outcomes by addressing the world’s major societal and environmental challenges, while at the same time producing a financial return.
Unlike broader sustainable investing, impact investing requires that investors seek assets demonstrating specific characteristics:
Intentionality
Intentionality is a key differentiator between impact investing and other forms of sustainable investing. This means a company specifically sets out to deliver a particular impact, with that goal being part of the company’s mission statement, strategy and actual day-to-day operations (inadvertent impact doesn’t count). There is also intentionality from the investor’s viewpoint; that is, the intention to generate positive social or environmental impact through an investment – to achieve this, investors must actively pick stocks because of their positive impact, rather than screening out companies or picking the least bad from each sector.
Additionality
In traditional impact investing, the ‘additionality’ of the investment is also considered, identifying and reporting the resultant impact of every pound, euro or dollar invested in a project – for example, a specific amount invested allowed a company to build social housing for 10,000 people, which otherwise would not have been built. This is the additionality of the investment.
Within public equity impact funds, which generally deal in secondary markets where the directing of that funding is not always possible, additionality is considered in other ways, generally focused on understanding the additionality of the company. To do that, we might ask how the world would be different if that particular company did not exist or if it were not adequately funded, or how replicable its products or services are. Increasingly, we are also considering how we can deliver additionality as investors ourselves, for example, by engaging with investees (see below).
Materiality
We also consider the materiality of investees’ products or services. This is the level to which they help solve a given societal problem or contribute to a particular goal, such as one of the UN’s Sustainable Development Goals (SDGs)*, and the percentage of a company’s revenue derived from those activities.
*Please note, while we support the UN SDGs, we are not associated with the UN and our funds are not endorsed by them.
Measurability
Another key differentiator between impact investing and other forms of responsible investment is ‘measurability’. In other words, the company’s positive impact must be measurable. This is one of the central tenets of impact investing, and also one of its most challenging aspects, especially so for investors in public equity markets where measurement can be less clear – quality of data and measurability of intangibles are key challenges.
‘Triple I’ framework
Within M&G’s range of public equity impact funds, the Triple I framework (encompassing Investment, Intention and Impact) is a practical means of scoring candidate companies. The framework robustly and consistently applies set criteria and standards for rating the impact and investment case of these companies.
Each ‘I’ score is derived from the assessment and rating of its key drivers (see below). The team aims to achieve an optimal balance of quality companies, with a solid, established culture that is consistent with management’s vision and strategy. We require above-average scores in each category, to ensure impact is not achieved at the expense of the investment case, or vice versa, and to gain comfort that the company’s activities are in line with our aims. We also examine how material the impact is to a company’s revenues, helping to ensure that the company will continue to deliver that impact effectively, as it is core to its business.
Crucially, we look at the ‘net impact’ of every potential investment, to avoid the positive impact we have identified being outweighed by potentially negative activity. For example, a wind-turbine producer will have a material initial carbon footprint, as it makes large steel structures. However, we look over the lifetime of that structure to determine if it avoids more carbon emissions – through the generation of clean energy – than were expelled in its construction. Every company produces positive and negative impacts to various degrees, and we need to be confident that our companies are on the right side of that balance.
Find out more information about our ‘Triple I’ framework in this article.
investment
• Business model • Competitive position • Capital allocation • Business risk • ESG risk • Liquidity
intention
• Mission statement and purpose • Strategic alignment and culture • Implementation
impact
• Materiality • Additionality • Measurability • Impact balance • Impact risk
The importance of engagement
Multiple parties, including the Global Impact Investing Network, highlight that engagement is not just an important part of impact investors’ toolkit, but a necessary demonstration of investor additionality*.
Impact engagements differ from more generic ESG engagements. They focus on supporting or challenging the company to protect or increase its primary positive impact. These engagements can cover a variety of topics, but may involve pushing companies to set more ambitious targets for the impact achieved, supporting it to allocate capital more actively to impactful activities, or encouraging it to report more clearly on its potential positive impact. By proactively engaging with investee companies, we can also reduce the risk of negative impacts being generated, and, where peripheral negative impacts may occur, work with stakeholders to address these issues.
Source: Global Impact Investing Network, ‘Guidance for Pursuing Impact in Listed Equities’, (thegiin.org), March 2023.
Discover our strategy related to impact investing
The SDG Reckoning Report - Can the world catch up?
The next few years will be absolutely pivotal to closing the annual SDG financing gap – estimated to be around US$2.5 trillion. The annual "M&G SDG plc Reckoning report", issued by our parent company M&G plc since 2020, recalled that the scale of financial flows addressing the SDGs is insufficient. It is evident that both the public and private sector must augment action and direct capital towards addressing global problems such as food insecurity, health inequalities, discrimination, pollution, global warming and habitat loss.
Discover more in the M&G plc SDG Reckoning report
Please note, while we support the UN SDGs, we are not associated with the UN and our funds are not endorsed by them.
Meet the team
John William Olsen
Fund Manager
- John William joined M&G in April 2014, and was appointed manager of the Global Sustain Paris Aligned and Pan European Sustain Paris Aligned strategies in July 2014.
- John William Olsen has been the manager of the Positive Impact strategy since launch in November 2018.
- Prior to joining M&G, he worked for Danske Capital, where from 2002 he had managed non-domestic equity portfolios, including the Global Stock Picking, Global Select and European Select strategies.
- He joined Danske Capital in 1998 as a fund manager on the domestic Danish equities team, and in 2000 also became a global sector analyst focusing on technology and telecommunications stocks.
- John William gained a BA in business economics and then an MSc in finance and accounting from Copenhagen Business School.
The value of the fund's assets will go down as well as up. This will cause the value of your investment to fall as well as rise and you may get back less than you originally invested.