Determining impact of conglomerates
Investing in listed securities often means that we invest in large, diversified companies. The additional impact of companies that have one product or provide a single service is easier to determine, but still requires research, as their activities can still do harm. Think of a solar panel company that does not take care of the environment, has no respect for labor standards in the supply chain, or does not take care of its waste. On the whole, it would have a net negative impact on society and the environment.
In our SDG framework, we take all of these issues into account.[3] We look for companies that derive more than 33% of their revenue from contributing to one or more of the goals and do no harm in the other part of their business. Companies that are active in underserved markets based on the Human Development Index get extra credits. And the value proposition is important – we look for companies that provide products and services that are highly cost effective and widely available, and those with major technical advances at a reasonable cost.
Means of measurement
And last but not least, it is important to have a means of measuring impact, to show that your investment really is making a difference. Robeco has done a lot of work in this arena using real money in real funds. Many different metrics are used to calculate the impact that their products or services makes on the ground. However, in representing impact measures, we need to be careful in our wording.
One European financial firm was recently sued for allegedly making misleading impact claims as a means of gaining new business. In the US, the SEC regulator now flags ‘potentially misleading claims’ by fund managers over the claimed use of sustainable investing, while new regulations in the EU under the Sustainable Finance Disclosure Regulation (SFDR) will police this arena more thoroughly.
For our Sustainable Water fund, for example, which invests in companies engaged in making advances in clean water distribution, sanitation and waste water treatment, we recently updated the impact measures. It was able to show that in 2020, its investee companies distributed 48 billion liters of clean water for every EUR 1 million invested, enough for 759 average households. That makes a real difference to the lives of people who were previously without clean water, as well as earning returns for our clients.
Next to updating the figures, we added extra explanations to ensure that these reports will not be accused of being misleading (greenwashing). In summary, we added information on the methods (and limitations) that we use to estimate impacts, adding notes on sources used throughout. We also clearly state that these impacts are caused by investee companies and therefore being ‘associated with’ the fund, rather than being caused by an investment in the fund.
Having mentioned my three main concerns on devaluation of the true meaning of impact investing, I am still quite proud that our impact investing claims can be measured, and that this bespoke range now accounts for 12% of all assets under management at Robeco. As client interests grow, so will the demand for impact investing, and we need to make sure we keep critical towards our approach and communication.
