Stockholm (NordSIP) – In their quest to facilitate environmental and societal benefits on top of financial returns, impact investment strategies face several challenges imposed by the limited data, absence of standardized metrics and costly engagement services underlying this investment approach.
To overcome these hurdles, investors seek specialised asset management partners who can provide them with the expertise necessary to reach their sustainable investment goals. In 2018, AP7, one of Sweden’s national pension funds, appointed Dublin-based KBI Global Investors (‘KBIGI’), to a Green Impact Equity Mandate. The partnership appealed to the Swedish asset owner on account of the Irish firm’s pioneering Water strategy and its proprietary RASS (‘Revenue Alignment SDG Scores’) research methodology, which calculates the contribution of constituent holdings in its portfolios to the delivery of the UN Sustainable Development Goals (SDGs).
Informed by their cooperation, KBIGI and AP7 recently published a new report on ‘Improving the measurement of Impact in listed equity’, which encapsulates three years of research focusing on three companies – China Water Affairs, Costain, and Consolidated Water.
Taking Stock
“When we started the collaboration with KBIGI in 2018, we agreed to jointly try to contribute to the development of methods and metrics. With that ambition, it is a great advantage that the operations of the companies concerned are not too diverse. In this case, they are united by a link to SDG 6, clean water and sanitation for all,” say AP7’s Johan Florén, Head of Communication and ESG, and Flora Gaber, Manager ESG Analysis, in the forward to the report.
“After three years of work, it is time to summarize the lessons so far. One conclusion is that there is a lot to do for anyone who wants to play their part,” Florén and Gaber continue. They highlight the need for more providers of data and engagement services, as well as the hurdles facing the development of standardized measurement methods and quantifying the benefits of impact investments.
“Today, there are many different initiatives in different parts of society that look for solutions and drive the development of evaluation methods for the societal benefits of investments. It inspires hope. We are happy that we, together with KBIGI, have been able to be part of that process,” Florén and Gaber explain.
Findings
The report outlines how KBIGI and AP7 developed their impact scoring methodology, including the integration of positive impact considerations, the establishment of adverse impact indicators at the company level and the differentiation between companies as to their level of impact.
The report identifies five main conclusions based on the three water companies reviewed. KBIGI claims it is possible to say that investing in global water stocks providing solutions to critical issues has an impact and serves to advance environmental and social goals.
KBIGI’s approach seeks balance the positive effect of the solutions that the company provides with any negative effect in achieving those outcomes. The asset manager also sees more and more companies prioritising impact in a strategic sense.
An intimate knowledge of the companies we are investing in allows a level of granularity that otherwise would not be available. To this end, KBIGI argues that its ability to establish company-specific impact assessments created a foundation for ongoing dialogue and demonstrated that these listed companies are having a net positive impact.
