Tensions simmer over definition of impact investing

Impact investing, as a dedicated niche of sustainable investing, is under threat by greenwashing from mainstream asset managers, specialists warn.

Impact investing as a dedicated niche of sustainable investing with a view to securing a pre-determined outcome is under threat by greenwashing from mainstream asset managers.

That’s the warning from providers of specialist impact strategies who say that an increase in client demand has led to a flurry of new launches which don’t fit the traditional definition of impact investing.

Executives at several impact managers, interviewed by ESG Clarity, say that mainstream asset managers are increasingly eating their lunch, and have become keen to market so-called impact strategies without offering sufficient evidence as to how they will achieve their end objectives.

Patrick Scheurle, the chief executive officer of Blue Orchard Impact Investment Managers, told ESG Clarity that investors seeking to deploy capital need to quiz fund firms more aggressively to ascertain their progress towards pre-determined outcomes.

He said: “It is a large risk to the sector. There is more and more greenwashing, where a lot of players claim to be impact investing, but we would not consider them to be doing so.

“In our interpretation, impact investing requires an active element. It is investing with the intent to make a positive difference, to actively engage with the investees to translate that investment into making a difference. At the reporting level they need to measure and report on their achievements.”

Scheurle’s comments were echoed by rival Neville White, the head of SRI policy and research at EdenTree Investment Management, who claims many asset managers are adopting a crude interpretation of the UN Sustainable Development Goals in their marketing materials but are failing to disclose how they translate this to make an impact.

“The limitations of the goals become apparent when utilised as a framework for measuring impact of portfolios. The overlay tools hurried to market so far seek to apply simple metrics to complex business models in a bid to provide a comparative, quantitative impact ratings methodology.

“While this approach seems straightforward at first glance, our deeper analysis shows several weaknesses embedded in these methods. Not least, the data available from companies on operational impact is limited.”

A UK government advisory report, released at the end of 2017, measured the size of the UK impact investing market at £150 billion, based on a definition, that “investments are made with the intention of creating a positive outcome, including in renewable infrastructure, social housing, social businesses and green bonds.”

In a statement, Tim Crockford, a portfolio manager for the Hermes’ Impact Opportunities Fund said he considers impact investing to be “the philosophy of moving beyond traditional screening methods to capture companies that are the sustainable leaders of tomorrow.”

He added that long-term impact returns should be achieved by “unearthing purposeful companies with innovative solutions to meet society’s needs.”