Time is running out to halt and reverse the damage that has been inflicted on our environment and societies, and by extension our future economy.
One very effective and powerful way to drive positive change is to mobilise capital with intent and purpose. There is an urgent need for our economic model to evolve and embrace impact as a key input into capital allocation decisions and ultimately, as a key determinant of future investment returns. With the right framework, investments in listed equities can generate real world impact. With this in mind, we have crafted a framework around 4 fundamental building blocks:
Additionality
we make the distinction between the impact generated and delivered by the underlying investment, i.e. by an investee company’s activities, and the impact generated and delivered by ourselves, the investor, primarily through our stewardship activities.
Intentionality
we identify at the outset an environmental or social sustainability challenge that the investment would help to solve.
Materiality
we seek to assess the scale of the investee company’s impact. We take into consideration how important these impact-linked activities are to its own revenues.
Measurability
we assess, measure and track outcomes that are meaningful and contribute to making a real-world impact.
Our framework is underpinned by our Positive Impact Principle, which underlies our twin ambition to deliver attractive financial returns, and positive non-financial outcomes.
Measuring real-world impact
We have selected some examples from companies in the Strategy that report impact-related outputs or outcomes to illustrate the real-world effect of their operations, products or services on the environment or on the lives of stakeholders, such as workers, suppliers and customers.
Expectations of companies’ measuring and reporting on the environmental and social impacts of their businesses continue to grow. While significant progress has been made, challenges remain, and we have been engaging with companies in the Strategy to discuss these challenges and offer support in identifying best practice. Currently, companies focus on their own actions as a proxy for impact (e.g. 5,000 new microloans disbursed), rather than diving deeper and using metrics to demonstrate that these actions have had a positive effect (e.g. new microloans improved borrowers’ income by x%).
Ideally, we would like companies to consider not just what type of impact they have but also how much – i.e. quantifying where possible the materiality of impact, its scale, depth and duration; who is affected (e.g. marginalised groups, low-income countries); the contribution their actions have beyond what would have happened anyway; and, where they are forecasting future impacts, the risk that these may not materialise as planned.
1.7 billion tonnes
of carbon emissions avoided through 151GW worth of installed wind turbines over the last 4 decadesVestas Wind Systems
10+ million consumers
reached with affordable microinsurance and microsaving solutions
Allianz
10.3 million households
reached through sustainable livelihood initiative
HDFC Bank
> 31 million people
reached (cumulatively) through Healthy Heart Africa, Young Health Programme and Healthy Lung programmes**AstraZeneca
20 million people
‘at the base of the global economic pyramid’ given access to clean water and sanitation solutions in 2020Xylem
347 million tonnes
of CO2 emissions saved and avoided for customers since 2018 (for context, in 2020 UK territorial greenhouse gas emissions were 406 million tonnes).
Schneider Electric
500million
unbanked people brought into the financial system***Mastercard
$4.6billion
provided in access to capital to small and medium-sized businessesPayPal
We would like companies to consider not just what type of impact they have but also how much.
Download the full report
Read in-depth engagement case studies and learn how portfolio holdings correspond to the seven sustainability themes including ‘Connect & protect’, ‘Energy transition’ and ‘Resource efficiency’.
