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.
Our ‘Triple I’ impact framework
Our impact team, representing a wide range of expertise, from fund managers, impact analysts and sector specialists, are dedicated to putting your assets to work, aiming to generate strong returns while also delivering clear benefits to society and the planet.
Selection begins with a global universe of stocks, which is initially screened for minimum liquidity and market-cap criteria, as well as screening out any companies deemed to be in breach of the UN Global Compact principles on human rights, as well as any sin stocks.
The remaining stocks are scored on their III credentials, and require above average results for inclusion in a fund’s watch-list, as well as consensus agreement of a company’s merit from all members.
Investment
How strong is the business model? Can the company generate sustainable returns?
Intention
Is positive impact an explicit company aim or just an accidental outcome?
Impact
What are the material, measurable benefits the company is delivering to help improve society and the planet?
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 strategies related to impact investing
The value of investments will fluctuate, which will cause prices to fall as well as rise and you may not get back the original amount you invested.
Explanations of the investment terms used on this page can be found in the glossary.
Informations on funds sustainability are available here.