Impact Investing is Highly Appealing, But Are Investors Ready to Incorporate It into Their Portfolios?
As we discussed in our article, Highlighting Consistency Across Impact Investing Frameworks, we established that intentionality, additionality, and inclusivity are the baseline for a sound impact investment approach, but it’s vital to look at how real-world investor approaches are currently embedding these components in their products.
Recently released insights from PRI’s publicly available signatory-reported data highlighted investors’ ESG practices. Investors were asked to describe their organizations processes relating to sustainability themed funds, specifically mentioning the term “impact.” This sample of qualitative individual investor responses was then analyzed for evidence of each of intentionality, additionality, and Inclusivity. The evidence produced was awarded a score on a scale of 0–2 in each category, with 0 being no evidence and 2 being significant evidence.
84% of respondents scored between 0 and 2 (out of 6 overall), demonstrating no or low recognition for the intentionality, additionality, and inclusivity of their impact investment process. Of these, 12% were found not to be describing an impact approach at all, but instead provided generic descriptions and referred to other ESG incorporation approaches such as ESG integration and screening. 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 other end of the spectrum, 16% 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. These are therefore those investors who through their practice demonstrate large commitments to the theory of impact investment.
Although this data demonstrates that there are some investors who have made commitments to impact investing the vast majority have not. Whether this comes from a lack of knowledge around the potential of impact investing or whether there is desire but confusion on where to start it’s clear that there is an education hurdle that impact investing has to make.