What does it mean to invest with impact?

In an era defined by unprecedented challenges, the call for transformative solutions has never been more pressing. With the global population anticipated to climb to 10 billion by 2050, the need to address challenges around food demand, climate change, waste, while upholding and improving social equity and community well-being is paramount. Addressing these issues requires urgent action and innovative solutions, with an estimated investment of $5-7 trillion needed annually to achieve the United Nations’ Sustainable Development Goals (SDGs)[1], significantly more than the $1.6 trillion pool of impact investments according to the Global Impact Investing Network (GIIN)[2]. Impact investing has emerged as a crucial method for mobilising capital towards initiatives that generate meaningful social and environmental benefits alongside financial returns.

Impact investing has significantly evolved in recent years, making disclosure and transparency essential for ensuring integrity among asset owners, managers, and allocators. While early efforts focused on quantifying impacts, it’s now evident that measurement alone does not ensure authenticity. A thorough approach must consider both positive and negative impacts and maintain due diligence throughout the investment lifecycle.

To navigate the challenges of impact investing, the nine Operating Principles for Impact Management (OPIM), promoting practices such as annual disclosures and independent verification. Schroders has committed to these principles, becoming a signatory in 2022. Following the acquisition of BlueOrchard, a pioneer in impact investing, Schroders developed a proprietary Impact Framework, which has been independently verified by BlueMark, a leading independent provider of impact verification services receiving top marks and subsequently featuring on BlueMark’s Practice Leaderboard.

Delivering impact in public equity investing

While historically dominated by private markets, expanding impact investment strategies to listed equities opens significant opportunities to address global challenges. Recent guidance from the GIIN encourages the application of established industry standards from private markets to public investments[3]. Leading industry standards like OPIM, Impact Frontiers, and IRIS+, which have established impact integrity in private markets, should also be applied to listed equities.

A common critique of listed equities is the perceived lack of investor contribution, as investments in secondary markets do not inject new capital, making non-financial contributions through engagement essential. Impact-focused strategies synchronise these engagements with a fund’s ‘Theory of Change’ to support long-term objectives, such as increasing impact-related revenues and improving the measurement of a company’s

Additionally, addressing the complexities of multinational and diversified companies is vital for evaluating impact in listed equities. Rigorous transaction-level impact assessments using frameworks like the Impact Frontier’s 5 Dimensions of Impact and IRIS+ can yield valuable insights into businesses’ contributions, including product-level mapping and robust KPI measurement.

Impactful investing in listed equities represents a powerful opportunity to mobilise capital and tackle pressing global challenges. By implementing robust frameworks and prioritising long-term relationships, investors can foster genuine social and environmental impact, paving the way for a more equitable and sustainable future.

Discover more about Schroders approach to impact here.

[1] https://www.unpri.org/download?ac=10795

[2] giin-sizingtheimpactinvestingmarket-2024.pdf

[3] Guidance for Pursuing Impact in Listed Equities – The GIIN

– This contribution is brought to you by Schroders, a valued bronze event partner of Building Bridges 2024.