In search of impact Measuring the full value of capital

To address this, the Investment Leaders Group (ILG), in co-operation with the University of Cambridge Institute for Sustainability Leadership (CISL), set out in 2014 to prepare a framework to measure the social and environmental impacts of capital ownership and investment. The framework, which was originally published in 2016 as In search of impact: Measuring the full value of capital, meshed directly with the United Nations (UN) Sustainable Development Goals (SDGs) aiming to assist investors in understanding the alignment of their portfolios with the commitments of 193 countries.

Our 2016 report offered investors a set of six impact metrics, distilled from the 17 SDGs, and tested two of them in practice. The work was well received by investors who are witnessing a growing demand from asset owners, financial regulators and, of course, the investing public for social and environmental issues to be addressed in investment processes. The 2016 report sought to answer the question, “is my fund doing harm or good?” with ‘good’ defined by the ambitions of the SDGs. However, owing to the complexity of this analysis, and the lack of disclosure from the asset base,
the report did not offer immediate, practical measurement solutions for investment managers. Our 2018 report seeks to address this gap.

The current report refines our descriptions of the idealised ways in which impact should be measured and goes on to explore how far those measures can be applied to investment funds using currently available data.

Unsurprisingly we find that current data permit only crude estimates to be made of the environmental and social impacts of funds at the present time. Nonetheless, the fact that any estimate is possible should be regarded as an important step towards enabling the industry to understand the impact of the capital it owns, manages and advises.

Ultimately our aim is to help financial consumers – the investing public – choose the services they want based on a fuller understanding of the impact those choices will have. By making available simple, meaningful and transparent information on the social and environmental performance of funds, the industry will be responding to the large number of clients showing increased preference for positive impact.

Clearly, reporting the alignment of a fund with the SDGs is a different proposition to deploying capital at scale to achieve them. To do that, investors will need to become accustomed to raising and deploying capital with broader aims than the majority of investment today, for example through significant direct investment in socially positive assets, particularly in (but not limited to) low-income countries where the needs are greatest.