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Reporting investment impact

While the financial performance of funds is readily accessible, their social and environmental impact remains largely opaque, not only to the public but to the industry. Individual investors have no platform to reflect their interests in sustainability and no outlet through which to influence fund managers to improve performance in this respect. Pension providers, asset managers and insurers gain by helping clients and savers make informed choices about the management of their savings and investments, including on social and environmental impact of funds.

Consumer interest in sustainable investment is increasing. We believe this interest is a catalyst for behavioural change in the investment industry which will accelerate the reallocation of capital to areas that contribute to sustainable development.

The Investment Leaders Group (ILG) developed an original framework to allow the industry to quantify investment impact and revolutionise consumer demand. The vision is a shift in social norms, as with the food and white goods industry, where improved transparency led to increased demand for sustainable choices.

To deliver this ambition, the ILG provides an overarching framework for understanding and communicating the impact of investment portfolios. The framework, inspired by the UN Sustainable Development Goals (SDGs), aims to help investors allocate capital based on empirical evidence of how the investing public reacts to sustainability data such that the investment value chain begins to request, collect and offer impact data.

Contact us to input to the further development of the work.

 

The framework


SDGs as a starting point

SDGwheel
Impact themes (click to enlarge).
The framework, published in the report In Search of Impact: Measuring the Full Value of Capital, helps investors understand, quantify and report the social and environmental impact of their investments.

It distils the UN SDGs into six impact themes relevant to investors, and piloted two themes which are particularly timely for society and relevant across all sectors – climate stability and decent work.

Characteristics

Unlike other initiatives which propose numerous technical metrics aimed at investment professionals covering both financial risk and sustainability impact, the proposed proxy for each theme is simple, outcome-based and relevant to influence retail clients and pension plan beneficiaries, empowering them to drive demand for sustainable investments.

Next steps

Left: quantifying impact; right: reporting on impact (click to enlarge).
The ILG is now extending that framework and analysing the four remaining themes - basic needs, wellbeing, resource security and healthy ecosystems.

CISL will advance relevant thinking from within the ILG network and across the University of Cambridge, along with input from progressive companies, to determine which social and environmental factors matter most to the investing public and what information, metrics and communication are needed for change.

Subsequently, the ILG will work to sensitise the ESG data industry, regulators and investor networks to facilitate systemic change.

 

Activities


The ILG is currently working with members of the Natural Capital Leaders Platform to co-develop a metric for healthy ecosystems, which progressive companies can use for reporting and that has been validated as practical by investors. This will enable investors and companies to monitor and manage their impacts on healthy ecosystems and drive positive outcomes for the environment. The ILG is also exploring opportunities within other networks to develop the three remaining impact themes - basic needs, wellbeing and resource security.

In parallel, the ILG is conducting research, in partnership with University of Cambridge academics, on how the presentation of such impact data can best influence the decision-making of individual investors, such as pension plan beneficiaries. The aim of the project is to better understand what social and environmental factors matter most to consumers, how they affect investment choices, and what forms of information are needed to underpin decisions. This will involve an international virtual money experiment designed to simulate real investment choices.

If you wish to learn more or be involved in either of the two activities related to thought leadership, please contact us.

Activities regarding industry engagement and leading by example are anticipated to begin in 2018.

Short link to this page: www.cisl.cam.ac.uk/impact

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Members

Investment Leaders Group members. Cambridge Institute for Sustainability Leadership.

 *HSBC Bank (UK) Pension Scheme