Industry Voice: Measuring the net impact of investments

The notion of delivering change is central to impact investing. After all, we are looking to achieve a positive impact for global society, as well as a long-term financial return, through our impact funds.

clock • 3 min read

As impact investors, it can be tempting to focus purely on the positive outcomes that companies deliver through the goods or services they provide. It is critical, though, that we also look for any negative impacts that may lie somewhere in a business, perhaps hidden in supply chains. This is because no company is whiter than white, however good their intentions.

Let's take the hypothetical example of a wind energy producer. By generating electricity renewably, the company displaces fossil fuels from the energy mix, saving millions of tonnes of carbon emissions. However, the process of manufacturing its wind turbines will have created emissions. This clearly has had a negative environmental impact, but one eclipsed by the much larger positive impact that it has enabled.

So long as we capture the negative impacts in our analysis of a company, we can weigh up whether the positive impact they deliver is greater - and therefore that their net impact is positive. This process takes time, as we need to look at each stock on a case-by-case basis.

To illustrate the reach of a company's impact, a starting point can be to calculate what percentage of its primary activities relate to one of the United Nations Sustainable Development Goals (SDGs). This is a universally recognised framework for identifying sustainable solutions for the most pressing challenges facing people and the planet.

Please note that while M&G supports the UN SDGs, we are not associated with the UN and our funds are not endorsed by them.

By establishing key impact indicators that are pertinent to a given company delivering impact against an SDG, we can quantify their contribution towards achieving it. Importantly, we should look not only at the progress companies make against the SDGs, but also at how this evolves over time, by tracking the year-on-year change in these impact indicators.

Some companies are very transparent in publishing key performance indicators, such as the carbon emissions they mitigate. Others could improve the numbers they share. As impact investors, we must have relevant and timely data to analyse companies' non-financial performance, and to gauge their progress over time. We therefore engage with companies to improve the quantity and quality of data they publish.

Measuring impact from investing in listed company shares isn't an exact science. The ‘additionality' of our investment - in other words, the difference we make - can largely be understood by considering the impact made by the companies whose shares we own.

To evidence additionality, we might ask how the world would be different if a particular company did not exist and consider if it has some technological know-how or impact footprint that would be hard for a new company to replicate.

However fund managers measure impact, I believe transparency with investors is all-important. By showing our working, and continually improving our metrics over time, we can demonstrate the net positive impact of investments and avoid accusations of greenwashing.

 

Find out more

 

The views expressed here should not be taken as a recommendation, advice or forecast.

For financial advisers only. Not for onward distribution. No other persons should rely on any information contained within. This financial promotion is issued by M&G Securities Limited which is authorised and regulated by the Financial Conduct Authority in the UK and provides ISAs and other investment products. The company's registered office is 10 Fenchurch Avenue, London EC3M 5AG. Registered in England and Wales. Registered Number 90776.

More on Investment

Partner Insight: Why choose semi-liquid funds for investing in renewable infrastructure?

Partner Insight: Why choose semi-liquid funds for investing in renewable infrastructure?

There are more opportunities for private investors to access renewable energy investments today. Schroders' Jack Wasserman and Duncan Hale look at how semi-liquid funds fit the bill

Jack Wasserman, Private Markets Group and Duncan Hale, Lead Portfolio Manager at Schroders
clock 26 November 2024 • 4 min read
JPMAM's Karen Ward: Political uncertainty in markets has been replaced with 'policy uncertainty'

JPMAM's Karen Ward: Political uncertainty in markets has been replaced with 'policy uncertainty'

Same number of unknowns in 2025

Eve Maddock-Jones
clock 22 November 2024 • 4 min read
Stories of the Week: Fund groups record weaker net sales; ISA reform 'under review'; Ballie Gifford withdraws from climate initiatives

stories-fund-record-weaker-net-retail-sales-isa-reform-review-ballie-gifford-withdraws-climate-initiatives

Funds, ISAs and climate initiatives: The biggest stories from the world of investment and asset management this week

clock 22 November 2024 • 1 min read
Trustpilot