Impact investors do not recognise criteria needed for investment frameworks

The majority of “impact” investors demonstrate no, or low, recognition for the criteria which are common to impact investment frameworks, according to a new study, ‘On the Way to Impact Investment: Mind the Gap between Theory and Practice’ from Qontigo, the indices and data business of Deutsche Börse Group, and the research team at Clarity AI, a sustainability analytics and data science platform

It found that 84% of respondents scored between 0 and 2, out of 6 overall, against an impact investing framework based on the intentionality, additionality, and inclusivity of their investment process.

Intentionality is an unambiguous desire to contribute to measurable social or environmental outcomes through the investment process; additionally is the increase in social or environmental benefits that would not have occurred without the investment; and inclusivity is the benefit from impact investment flows towards underserved populations.

Qontigo and Clarity AI said in the report, “We believe these poor trends are indicative of the general impact investment narrative. Confusion is common among different sustainable investing approaches at worst and within the individual pillars of investment impact creation at best.”

At the top end of the spectrum, 16% of investors scored between 3 and 6, with 9% being awarded full marks. “This demonstrates that a listed equity impact investment approach that is conscious of its intentionality, additionality, and inclusivity is perfectly possible, as measured by our methodology,” added the study.

The research also found that there is currently no standardised approach to the measurement of impact.

One investor said in the report, “One of the great challenges with impact investing – public or private – is accurately measuring the impact of a company. Data availability is weak – particularly in emerging markets – making complex methodologies futile, and potentially even deceptive.”

The sustainable investment team at Qontigo and the research team at Clarity AI worked together to analyse three widely referenced frameworks in order to identify a baseline for what constitutes impact investment. They found that the baseline for all the frameworks consisted of the intentionality, additionality, and inclusivity of the impact resulting from the investment decisions under consideration.

Qontigo and Clarity AI then compared the current state of “impact-branded” investment practices by listed equity investors to that criteria. They analysed the UN Principle of Responsible Investment’s publicly available signatory-reported data, which constitutes the world’s largest database of responsible investment practices.

PRI signatories submit details of their ESG practices on an annual basis and last year there were submissions from 960 PRI signatories. The study focused on a sample of 74 that specifically referred to the word “impact” managing a total of $20.5tn.

©Markets Media Europe 2021

 

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