Impact considerations
One element that investors need to consider is the idea of ‘intentionality’. This is when 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.
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. As listed equity impact funds are generally dealing in secondary markets, and the directing of that funding is often not 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.
Another key differentiator between impact and other forms of responsible investment is ‘measurability’. 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 here, but they need to be overcome for public market impact investors to be effective.
Given the scale of the challenges the world is facing today, we need to invest now to help protect the future of the planet and our place in it. Impact investment should increasingly help drive solutions, and can do so while delivering attractive investment returns to investors.
