In search

of impact
Measuring the full
value of capital
Update:
Investment Impact Framework
University of Cambridge Institute for Sustainability Leadership Investment Leaders Group
The University of Cambridge Institute For over three decades we have built The Investment Leaders Group (ILG)
for Sustainability Leadership (CISL) is individual and organisational leadership is a global network of pension funds,
a globally influential Institute offering capacity and capabilities, and created insurers and asset managers committed
solutions for a sustainable economy. industry-leading collaborations, to to advancing the practice of responsible
Our Rewiring the Economy plan shows catalyse change and accelerate the path investment. It is a voluntary initiative,
how the economy can be ‘rewired’ to a sustainable economy. Our Rewiring driven by its members, facilitated by the
through collaboration between business, Leadership framework sets out our model Cambridge Institute for Sustainability
government and finance institutions to for the leadership needed to achieve this. Leadership (CISL), and supported by
deliver positive outcomes for people Our interdisciplinary research engagement academics in the University of Cambridge.
and environment in pursuit of the UN builds the evidence base for practical
Sustainable Development Goals (SDGs). action, through a focus on six cross-cutting The ILG´s vision is an investment chain in
themes critical to the delivery of the SDGs: which economic, social and environmental
sustainable finance, economic innovation, sustainability are delivered as an outcome
inclusive development, natural capital, of the investment process as investors go
future cities and leadership. about generating robust, long-term returns.

Publication details
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Published: August 2019

Author and acknowledgements

This report was written by a CISL team led by Dr Jake Reynolds, and including Faty Dembele, Jasminka Enderle, Kajetan Czyz, Liam Walsh
and Gianna Huhn, with input from Dr Chris Tuppen, Advancing Sustainability; Dr. Sakis Kotsantonis and Bronagh Ward, KKS Advisors; Dr
Alexandra Winkels, Centre of Development Studies, University of Cambridge; Justin DeKoszmovszky, Inbonis, and Dr Tatiana Thieme, UCL.
We are very grateful to the members of the Investment Leaders Group (ILG) for feedback and comment throughout. In particular, we would like
to thank Aegon Asset Management, HSBC, PIMCO, UBP for their immense help testing the metrics.

We would also like to thank Adam Ashcroft, Vigeo Eiris; Marion deMarcillac, MSCI; Mirova; Ellen Quigley; Yiannis Bartzilas, PIMCO; Revan
Arkan, Bloomberg; Tidjan Ciss, UBP; Adrien Cambonie, UBP; Victoria Leggett, UBP; Niamh Whooley, PIMCO; Chris Nimmick, HSBC for their
contribution to this report.

Disclaimer
The findings, interpretations and conclusions expressed here are those of the authors and do not represent or imply any official position,
opinion, judgement or endorsement on the part of their companies; the University of Cambridge Institute for Sustainability Leadership
(“CISL”); the Chancellor, Masters, and Scholars of the University of Cambridge (“University of Cambridge”); or their clients. This report and the
framework herein do not comprise, constitute or provide, nor should they be relied upon, as investment or financial advice, credit ratings, an
advertisement, an invitation, a confirmation, an offer or solicitation, or recommendation, to buy or sell any security or other financial, credit or
lending product or to engage in any investment activity, or an offer of any financial service. They are designed for research use only and are not
designed for or tested for providing information on which to base financial, investment or operational decisions. To the extent permitted by law,
no warranties, representations, conditions or commitments of any kind, express or implied, are made about the content of this report and / or
the framework, including any implied warranties of satisfactory quality, fitness for a particular purpose or non-infringement or other warranties
or conditions implied by statute, and are expressly excluded. There is no warranty or commitment that either this report or the framework
are error-free, accurate, reliable or complete or that any errors will be corrected. Any action you take upon the information in this report or
framework is strictly at your own risk, and in no event will the authors or their companies, CISL, the University of Cambridge, or their
clients be responsible or have any liability (to the fullest extent permitted by law) for any damages, losses, liability or expense incurred
or suffered (including direct or indirect, incidental, consequential loss or special damage) howsoever arising from or in connection
with the use of this report or the framework or otherwise in connection with any relationship established by them.
 Investment Impact Framework 1

Foreword

A broad range of stakeholders, from pension

funds to investment consultants, insurance
companies to investment managers and individual
savers, all agree that meaningful data on the social and environmental
impact of funds could be transformational for the investment industry.
It is not only critical to providing transparency to clients and The Investment Impact Framework achieves these three things. We
beneficiaries about the consequences of their investment decisions, acknowledge that the practical metrics offered in this report are pale
but to building an economy that is resilient to the many shocks on the shadows of their ideal cousins. If the objective is to calculate the
horizon arising through the unsustainability of the current model. absolute sustainability of a fund they are by no means satisfactory
or fit for purpose. For this the report clearly states that companies
Valid, intellectually robust information on impact offers stakeholders should be judged by their performance against the ideal metrics
a lens onto the legitimacy of the investment industry in a world facing introduced in the report. Such an exercise is not possible today due
enormous risks from climate change, land degradation and inequality to limitations in current data. As an alternative, the practical (base)
– and hence a new and compelling means through which investment metrics offer a courageous ‘best effort’ to kick-start impact analysis
managers’ processes may be judged. We should all acknowledge based on easily available data today. We encourage all readers of the
that the industry’s preoccupation with short-term financial metrics report to frame their understanding of its findings with this in mind.
has not always served society well; that it is time for a reappraisal of
the aims and objectives of investment. Through our engagement with standard setters, information
providers and companies, we hope the publication of the Investment
Corporate data disclosure traces its origin to regulatory, investor Impact Framework will encourage a profound rethink of non-financial
and customer pressure, driven by underlying social change. reporting. Remember too that not all impact data will be dependent
We congratulate those companies which produce innovative on corporate disclosure. Advances in Earth observation and big
sustainability data voluntarily – they are the few not the many – and data analysis may lead to alternative, robust sources of corporate
encourage others to follow suit. The Investment Impact Framework information in future.
introduced here provides a clear roadmap for where non-financial
disclosure is moving next, and the answer is sustainability impact. We share a common vision of the future of impact reporting in which
all funds will be assessed using a common impact standard such
For years companies have shared details of their governance, that financial consumers can make informed choices about how
processes and policies, and their forward intent. The reporting and where to invest. This report represents an important step in
of impact is fundamentally different however, and should not be that direction.
underestimated. Firstly the impacts investors are concerned with
need to be defined, and we are pleased to see the Investment Impact
Framework take the United Nations Sustainable Development Goals
(SDGs) as its inspiration. Secondly robust measures need to be
defined which test the alignment of a company – or in aggregate
a fund – with those SDGs. They need to be simple to understand,
and few in number. Thirdly they need to be resolvable into practical
measures for use by investors today, not necessarily the last word,
but a step in the right direction.

Investment Leaders Group (ILG) members 2019

2 Investment Impact Framework

Contents
Executive summary 3 Theme 4 : Resource security 27
Introduction 4 What is the ideal measure? 27
Design principles 8 What can be measured today? 29
Our reference point: the SDGs 8 Limitations 30
Ideal vs practical measures 8 Test results: resource security 30
Aggregation and asset classes 8 Theme 5 : Healthy ecosystems 31
Outcomes vs intentions, processes or policies 9 What is the ideal measure? 31
Intentionality and additionality 9 Land degradation status 33
Categorisation 9 Land degradation trend 34
Metrics and methodology 11 What can be measured today? 35
About the testing process 12 Limitations 37
Calculation of impact 13 Test results: healthy ecosystems 37
Calculation of relative performance 14 Theme 6 : Climate stability 38
Theme 1 : Basic needs 15 What can be measured today? 40
What is the ideal measure? 15 Limitations 42
What can be measured today? 16 Test results: climate stability 42
Limitations 18 Conclusions 43
Test results: basic needs 18 Next steps 44
Theme 2 : Wellbeing 19 Annex A: Basic needs GICS codes 45
What is the ideal measure? 19 Annex B: Data tables supporting test results 46
Limitations 22 References 48
Test results: wellbeing 22
Theme 3 : Decent work 23
What is the ideal measure? 23
What can be measured today? 24
Limitations 26
Test results: decent work 26

This report is part of a series of related outputs on sustainable investment published by the ILG and CISL:

INVESTMENT LEADERS GROUP Investment Investment Investment

Leaders Group Leaders Group Leaders Group

THE VALUE OF #RewireEconomy

RESPONSIBLE INVESTMENT
The moral, financial and economic case for action Taking the Feeling In search
long view the heat of impact
A toolkit for long-term, An investors’ guide to Measuring the full
sustainable investment measuring business value of capital
mandates risk from carbon and
energy regulation

Unhedgeable risk
How climate change sentiment
impacts investment

The moral, financial and Analysis of the short-term Guidence on the Assessment of the Framework to help
economic justification for risks stemming from how characteristics of impact of carbon-related investors measure
responsible investment, investors react to climate- mandates that encourage regulation on asset and communicate
and the academic evidence related information long-term, sustainable profitability their contribution to
underpinning future action investment management sustainable development
 Investment Impact Framework 3

Executive summary

All investment has an impact on the real world. To a large extent these
impacts – for example job creation or natural resource consumption
– are opaque to investors, with limited information available from
standard information sources.
To address this, the Investment Leaders Group (ILG), in Unsurprisingly we find that current data permit only crude
co-operation with the University of Cambridge Institute for estimates to be made of the environmental and social
Sustainability Leadership (CISL), set out in 2014 to prepare a impacts of funds at the present time. Nonetheless, the fact
framework to measure the social and environmental impacts that any estimate is possible should be regarded as an
of capital ownership and investment. The framework, which important step towards enabling the industry to understand
was originally published in 2016 as In search of impact: the impact of the capital it owns, manages and advises.
Measuring the full value of capital, meshed directly with the
United Nations (UN) Sustainable Development Goals (SDGs) Ultimately our aim is to help financial consumers – the
aiming to assist investors in understanding the alignment of investing public – choose the services they want based on
their portfolios with the commitments of 193 countries. a fuller understanding of the impact those choices will have.
By making available simple, meaningful and transparent
Our 2016 report offered investors a set of six impact information on the social and environmental performance of
metrics, distilled from the 17 SDGs, and tested two of them funds, the industry will be responding to the large number of
in practice. The work was well received by investors who are clients showing increased preference for positive impact.
witnessing a growing demand from asset owners, financial
regulators and, of course, the investing public for social Clearly, reporting the alignment of a fund with the SDGs
and environmental issues to be addressed in investment is a different proposition to deploying capital at scale to
processes. The 2016 report sought to answer the question, achieve them. To do that, investors will need to become
“is my fund doing harm or good?” with ‘good’ defined by the accustomed to raising and deploying capital with broader
ambitions of the SDGs. However, owing to the complexity of aims than the majority of investment today, for example
this analysis, and the lack of disclosure from the asset base, through significant direct investment in socially positive
the report did not offer immediate, practical measurement assets, particularly in (but not limited to) low-income
solutions for investment managers. Our 2018 report seeks countries where the needs are greatest.
to address this gap.

The current report refines our descriptions of the idealised

ways in which impact should be measured and goes
on to explore how far those measures can be applied
to investment funds using currently available data.
4 Investment Impact Framework

Introduction

Irrespective of conscious effort, all investment has an impact on the real world;
it is just not generally measured. If the impacts of an investment are intentionally
positive, one might describe the process as impact investing.

However, the study of impact should not be constrained to the Framework introduced in this report can be applied to all such
limited – if interesting – world of impact investment. Box 1 highlights strategies, allowing investors to measure the social and environmental
a spectrum of investment approaches from conventional to impact consequences of their decisions and report them to their clients
investing, all of which have consequences – small or large – on and beneficiaries.
the economy, society and environment. The Investment Impact

Box 1: A spectrum of investment approaches

Conventional investing Screening ESG integration Thematic investing Impact investing

Limited or no focus on Negative or exclusionary Explicit and systematic Selection of assets that Investment made
ESG factors screening, positive or inclusion of material ESG contribute to addressing with the intention of
best-in class screening and issues in investment sustainability challenges generating positive,
norms-based screening analysis and investment such as climate change or measurable, social and/
decisions water scarcity or environmental impact
alongside financial
returns

Adapted from the Principles of Responsible Investmenti and Global Impact Investing Networkii

The Investment Impact Framework is designed to empower financial

consumers to understand, and make informed choices about, the
social and environmental performance of their investments. Having We define investment impact as the
access to such information does not replace their use of traditional social and environmental outcomes of
financial data, but complements it. A common approach to reporting investment rather than the intentions or
investment impact would improve the credibility of investment processes behind it.
managers’ impact claims, allow comparability across funds and build
trust along the entire investment value chain, benefitting individual
savers and investors (the ‘investing public’) and larger asset owners
such as pension funds, insurance companies, family offices and
sovereign funds.

i
Principles for Responsible Investment. (2017). PRI Reporting Framework Main definitions 2018. London. PRI
ii
Global Impact Investing Network. (2019). What you need to know about impact investing? Retrieved January,
9, 2019 from https://thegiin.org/impact-investing/
 Investment Impact Framework 5

The framework is intended to provide a thoughtful contribution to example through significant direct investment in socially positive
the measurement and reporting of investment impact, and pave the assets, particularly in (but not limited to) low-income countries where
way for future standardisation. There is certainly more public and the needs are greatest.
political concern surrounding the consequences of global capital
flows than ever before. In a world seeking to achieve the ambitious Such strategies are not addressed in this report.
United Nations Sustainable Development Goals (SDGs), all funds
may be expected in future to explain how they relate to these The Investment Impact Framework provides investors with a simple
important priorities.1 dashboard to check their alignment with an otherwise complex
web of SDGs. The dashboard comprises six core themes which
Clearly, reporting the alignment of a fund with the SDGs is a different are themselves derived from CISL’s Rewiring the Economy plan (see
proposition to deploying capital at scale achieve them. To do that, Box 2).2 They span three social ambitions and three environmental
investors will need to become accustomed to raising and deploying ambitions as shown in Figure 1 (on the following page).
capital with broader aims than the majority of investment today, for

Box 2: Rewiring the Economy

Our current economic system produces positive outcomes such as jobs, There is a problem however: the global economic system is not aligned
healthcare and education services, but it also results in negative outcomes with the delivery of the goals. Until this changes, it will be an uphill task
such as climate change and waste. We believe the economy can be to achieve them. Rewiring the Economy is the University of Cambridge
‘rewired’ in such a way that it produces the good outcomes without the Institute for Sustainability Leadership’s (CISL’s) plan for fixing this. It is a
bad – and that finance is a big part of the solution. recipe for collaboration between the three key actors in the economy:
business, government and finance.
The United Nations Sustainable Development Goals (SDGs) were
launched by world leaders in 2015. The 17 goals are a universal call to
action to end poverty, protect the planet and ensure that all people enjoy
peace and prosperity by 2030. We look on them as the closest thing the
world has to a strategy.
6 Investment Impact Framework

Figure 1: Rewiring the Economy: ten tasks to lay the foundations for a sustainable economy

Our aim is to empower financial consumers by making the social and

environmental performance of funds transparent to them in the same way
that health and other concerns are apparent to food consumers today.
 Investment Impact Framework 7

In order to achieve this aim, the whole investment value chain, The framework seeks to change that by enabling investors to explore
from companies and project developers to investment managers, the impact of their decisions on global challenges such as poverty,
consultants, information providers, asset owners and beneficiaries wellbeing, job creation, natural resources, ecosystems and climate
will need to review – and in many cases rethink – what is required change – and by encouraging the sharing of this information with
of it in a world committed to the SDGs. Financial policymakers the public. It provides measures which are applicable in a standard
and regulators also stand to benefit from a greater understanding way to all forms of investment, irrespective of style, asset class
of investment impact in order to ensure financial markets play an or geography.
effective role in delivering this global vision.

Specifically, the framework is intended to empower financial

consumers to understand, and make choices about, the social and With interest in investment impact growing
environmental impacts of their investments alongside their use of rapidly, now is a good time to settle on a
traditional financial data. Impact information can be disclosed in fund common approach to measurement.
factsheets to inform choices about fund selection or can be used by
institutional investors to specify their expectations about impact in
‘request for proposal’ processes, mandates and policy statements.
Many companies experience ‘reporting fatigue’ when responding
In order to be usable by consumers, the framework must be to multiple disclosure requests from varied stakeholders, including
straightforward to understand. By concentrating on a small investors. With growing interest in sustainable finance, and impact in
number of impact themes (six in total) we believe that very complex particular, requests are very likely to continue to arrive separately and
information about the impact of financial flows into the economy can in great number. Our framework provides a theoretically grounded
be communicated to this market clearly, and in a meaningful way. indication of what future requests for impact performance may
look like. We hope it will inspire information providers to build the
The metrics accompanying each theme are grounded theoretically, necessary datasets to respond to future demand, and governments
shaped by academics and specialist practitioners. In their most ideal to insist on improvements to corporate disclosure.
form they are not measurable today due to scarcity of relevant data.
We recognised this constraint in our 2016 report but were not in a As part of its Financing Sustainable Growth Action Plan3, the
position at that time to develop more practical solutions. In this report European Commission highlights the importance of standardised
we go a step further with practical metrics for each theme that can corporate reporting to enable comparative analysis by investors. In
be applied to funds using data typically available to investors today. 2018 the Commission also established a Technical Expert Group with
a mandate to create a taxonomy of sustainable finance definitions,
This approach is not without its compromises. The practical metrics first for climate change and later for broader sustainability issues.
we offer (referred to as ‘base’ metrics) are pale shadows of our more
theoretical ideal metrics. Despite their limitations we decided to offer Finally, it is important to state what the framework is not. Explicitly it
them as a practical means of getting started while improvements in does not set out to determine the materiality of environmental and
data infrastructure and reporting are made throughout the industry. social impact to financial performance, nor make any assumptions
about the correlation between positive impact and financial
The sub-optimal state of impact data today should be a call to action performance. That said there is growing evidence (and much
for the whole investment value chain. Given the central economic theory) linking sustainability innovation to cost efficiency, employee
significance of the issues, the question arises: How can corporate motivation and market growth of companies. In its report, Better
disclosure and data distribution networks be upgraded to give Business, Better World,4 the Business and Sustainable Development
investors visibility of their real-world impacts? It was sobering to Commission found that companies delivering solutions to the SDGs
discover during the preparation of this report that some corporations could gain exposure to US$12 trillion of market opportunities over the
cannot state with precision how many people they employ, nor period to 2030 in the four economic systems they studied: food and
how much land their companies occupy, let alone have a handle on agriculture, cities, energy and materials, and health and wellbeing (60
the quantity, scarcity and toxicity of the materials flowing into their per cent of the real economy).
operations. The reality of environmental and social disclosure today is
that we struggle to answer one of the most basic questions that can
be asked about an investment: Is it doing harm or good?
8 Investment Impact Framework

Design principles

Our reference point: the SDGs

To avoid the need to take a subjective view on what is ‘good’ and healthy ecosystems and climate stability). Companies – and the funds
‘bad’ for society, we adopt the SDGs as our reference point since which invest in them – generally score quite positively on the social
they were agreed by 193 countries in 2015. While they are not perfect dimensions of sustainability through their role in creating jobs, wealth
no other approach defines the world’s chosen destination in 2030 so and basic services. In contrast, while companies vary considerably
comprehensively or with so much public ownership. in their environmental performance, with many beginning to offer
important solutions to sustainability challenges, it is near-impossible
Our framework distils the breadth of the 17 SDGs into six simple to achieve a positive impact on the environment in absolute terms
themes without significant loss of integrity or scope. Three of our owing to the inherent conflict between economic activity and nature.
themes are social in nature (basic needs, wellbeing and decent
work), while the other three are environmental (resource security,

Ideal vs practical measures

Impact measurement is complex, multi-factor and data-demanding. The ideal metrics are offered as a guide to how impact could be
Two grades of metric are therefore proposed for each of our six measured in years to come when the investment industry has
themes. The first represents the ideal way to measure impact in a developed the necessary data infrastructure. The base metrics are
world of perfect data (ideal metric), whilst the second is a practical designed to help investors start that journey. Both sets of metrics
measure calculable using data available to investors today (base are intended to provide objective, comparable, consistent and
metric). The latter are crude approximations of more complex reproducible results.
phenomena, heavily constrained by the availability of relevant data.
However, they do have the advantage of being applicable today.

Aggregation and asset classes

Our aim is to help investors measure the aggregate impact of The metrics are designed to work at both an asset level (ie an
their assets at fund level. We therefore decided not to develop individual company or project) and at fund level when aggregated
sector-specific metrics in favour of more generalised metrics which across a portfolio of assets. In general aggregation methods should
transcend sectors, asset classes, investment styles and geographies. avoid the practice of ‘double counting’ which can occur when a
While our ideal metrics do just that, our base metrics are most readily variable (eg jobs or greenhouse gas (GHG) emissions) is recorded
applicable to corporate bonds and equities owing to the relative more than once within a value chain. Whereas the ideal metrics
abundance (and consistency) of data compiled on these asset would cope with this level of complexity, our base metrics look purely
classes at the present time. In principle cash, derivatives, sovereigns at operational impacts and hence avoid double counting (e.g. Scope
and other asset classes could be included in the framework, but 1 and 2 GHG emissions).
require further methodological development.
 Investment Impact Framework 9

Outcomes vs intentions, processes or policies

Our framework assesses real-world outcomes rather than intentions To assess whether a company will improve its environmental and
such as corporate strategies, processes or policies as the latter may societal impacts, investors typically use proxies accessible today
be ineffectual or fail to reflect actual practices. Inevitably this means such as the level of capital expenditure, R&D expenditure dedicated
that our assessment of impact is based on reported results rather to the provision of sustainability products or services, or the long-term
than forward insight. However, in a complex and emotive area such targets announced by companies. Whilst there is clear value in this
as social and environmental performance, one could argue that approach, it is not amenable to aggregation across large numbers of
a company should be evaluated on the basis of its proven impact assets and, unfortunately, corporate announcements may not always
rather than intent. translate into tangible impact results. We have therefore decided not
to include such information in our framework.

Intentionality and additionality

In direct investment, investors can put new capital into assets with Our framework makes no particular claims about intentionality
desirable characteristics such as financial potential or positive and additionality one way or the other. It simply provides users
impact. In other words they can implement an intent to achieve with a more thorough and socially relevant way to judge how
certain outcomes from their investments. The same cannot be so their investments – direct, primary or secondary – relate to global
easily said of public markets, and secondary trading in particular, sustainability aims. Tools such as active ownership, engagement,
where assets may be largely unaffected by buy-hold-sell decisions, ESG integration, thematic strategies, divestment and passive tilts are
and may not even be aware. Similarly, additionality – the claim that all available to enhance this relationship, enabled by the information
a given outcome would not occur without a specific action (in this generated from this framework.
case investment) – remains challenging to interpret in a secondary
market context.

Categorisation
The metrics can be used to generate quantitative or qualitative data. the six impact themes in the framework can be treated in this way,
Quantitative results such as numbers representing job intensity or with the colours representing the performance of an asset (or fund)
GHG emissions performance communicate impact in its rawest form. across the range: very negative, negative, neutral, to positive and very
They can also be placed in categories representing different levels of positive. Such categories can be arrived at on the basis of absolute
impact such as the five-colour scheme shown in Figure 2. Each of or relative performance.

Figure 2: Five-colour categorisation of impact

Very positive

Positive

Neutral

Negative

Very negative
10 Investment Impact Framework

Our ideal metrics are designed to assess absolute performance For simplicity, our base metrics assess relative performance in
with reference to the SDGs. For example, if a fund scores positively comparison to a benchmark such as an investment index. The same
on basic needs it would mean that on balance its assets are well five-colour approach (Figure 2) may be used to communicate results
aligned with the ambitions to eliminate poverty by 2030. Gauging by mapping colours to performance quintiles in the benchmark.
whether a certain level of impact is consistent with the SDGs is In our 2016 report we extended this idea into a multi-theme
clearly challenging, particularly with social themes such as wellbeing representation of impact suitable for communication in full or part to
or decent work where it is difficult to say what is ‘sufficient’ or financial consumers through factsheets and other information. Figure
‘good enough’ to contribute fairly to global ambitions. Yet those are 3 shows a mock-up of this approach using data generated from an
precisely the judgements which need to be made in order to assess example fund analysed later in this report. Note that we have resisted
SDG alignment. Environmental themes are more straightforward to the temptation to combine the six sources of information into a single
analyse since it is possible to assess whether an asset is sustainable impact ‘score’. Differences in the nature of the six themes mean
in scientific terms based on its degree of degradation or restoration of that netting, offsetting or any form of assumed fungibility would be
land, climate burden, and so on. questionable if not invalid.

Figure 3: Combining information on the six impact themes

lthy ecosystems
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im
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4.6 39
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sta
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tonnes tonnes
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 Investment Impact Framework 11

Metrics and methodology

Our six impact themes are summarised in the table below alongside their ideal and practical (base) metrics.

Table 1: Ideal and base metrics at a glance

What is the ideal measure? What can be measured today?

Theme Absolute performance with respect to SDGs Relative performance with respect to benchmark
Whole value chain focus Operational focus (value chains not appraised)

Basic needs Total revenue from products and services addressing the Total revenue from goods and services from clothing,
basic needs of low-income groups5, adjusted by PPP- communications, education, energy, finance, food, healthcare,
weighted International Poverty Line6 housing, sanitation, transport and water (see Annex A)
Unit: US$ Unit: US$

Wellbeing Total tax contribution7 (comprising taxes on profits, Total tax contribution
people, production, property and environment but not
sales) by country, adjusted by national corruption8 and
spending effectiveness
Unit: US$ Unit: US$

Decent work Total number of open-ended employment contracts excluding Total number of employees based on full time equivalent
jobs below 60 per cent median wage (living wage) and jobs in (FTE) workers10
poor working conditions (health & safety, discrimination, rights
of association), adjusted by national employment rate9
Unit: number of jobs Unit: number of FTEs

Resource Hard commodities: Virgin material content of end products Total net waste (total waste arising – total waste recycled)
security (adjusted by scarcity) plus waste lost to the environment
(adjusted by toxicity)
Soft commodities: Non sustainably certified content of end
products plus waste not specifically returned to nature
Unit: metric tonnes (t) Unit: metric tonnes (t)

Healthy Area of land utilised by an asset in degraded form Fresh water use (surface water plus groundwater plus
ecosystems municipal water)
Unit: hectares (ha) Unit: cubic metres (m3)

Climate stability Alignment to future warming scenario based on consumption Total greenhouse gas (GHG) emissions (Scope 1 and 2)
of global carbon budget
Unit: degrees Celsius (˚C) Unit: tonnes (t) carbon dioxide equivalent (CO2e)
12 Investment Impact Framework

About the testing process

Each impact theme is developed further in the sections that follow, The following should be borne in mind when interpreting the
including a detailed description of its ideal and practical (base) metric. test results:
Test results are presented for each base metric using an example
fund and data available to investors today. Their limitations are spelled 1. A ll data was sourced data from one leading provider: Bloomberg.
out clearly to avoid any misunderstanding about their accuracy given The latter was selected purely as an example of what exists in the
the state of current data. Indeed the testing process overall market today with no endorsement implied.
should be regarded purely as illustrative of what type of 2. Only raw data items were used to calculate the metrics (not ESG
social and environmental impact assessment is achievable scores) to provide maximum transparency for investors, and
using data which are easily accessible to investors. ability to replicate results.
3. Data items were only considered if they covered at least 10 per
cent of the MSCI World index.
4. The example fund was UBP’s Positive Impact Equity, with no
endorsement implied (see Table 2, Figures 4 and 5).
5. Where a proportion of assets in the fund did not report the
required data, the total impact was extrapolated based on
reporting assets.
6. Results were normalised in the form of ‘impact per US$ 1m
invested’ to allow comparison with a benchmark fund – in this
case the MSCI Europe index.

Table 2: Characteristics of example fund

Name Positive Impact Equity

Description Fund containing assets believed to be making a positive impact on society and/or the environment through their
products, services and operations. Typically involves a technology or innovation enabling better use of resources
(circular economy) or unique healthcare solutions. Fund aims to address the first 15 of the SDGs.

10 top holdings Red Electrica; Intertek; Tomra; Genmab; Alk-Abello; Kerry; Orpea; Aquafil; Basic-Fit; Thule; Kingspan

Asset class(es) 100 per cent listed equity

Size 58.3 MUSD invested in 28 assets

Benchmark MSCI Europe

 
 Investment Impact Framework 13

Figure 4: Geographic coverage of example fund Figure 5: Sectoral coverage of example fund

16 22 1
15 1 21
2
14 20

13 3
1 Asset Management & Custody Ban 3%
2 Auto Parts & Equipment 8%
3 Biotechnology 4% 4
12 1 Great Britain 14% 19 4 Building Products 2%
2 Norway 11% 5 Construction & Engineering 2% 5
2
3 Denmark 11% 6 Electric Utilities 5%
4 France 7% 7 Environmental & Facilities Services 8%
11 5 Germany 7% 8 Forest Products 2% 6
6 Ireland 7% 9 Health Care Facilities 5%
7 Netherlands 7% 10 Heavy Electrical Equipment 2%
8 Spain 7% 18 11 Homebuilding 2%
10 9 Luxembourg 4% 12 Industrial Machinery 6%
10 Italy 4% 13 Leisure Facilities 5%
11 China 4% 14 Leisure Products 4% 7
12 Portugal 4% 17 15 Packaged Foods & Meats 8%
9 13 Kenya 4% 3 16 Paper Packaging 3%
14 Sweden 4% 17 Pharmaceuticals 5%
15 Switzerland 4% 18 Research & Consulting Services 4%
16 United States 4% 16 19 Specialty Chemicals 10% 8
20 Textiles 5%
8
21 Wireless Telecommunication Services 3%
22 Cash 4% 9
4 15
10
7 11
5 14
12
6 13

Calculation of impact
We assume a fund containing a portfolio of N assets which are Where:
assumed to be equities or corporate bonds. The impact of a client
investing in the fund is the total impact of the fund multiplied by the
proportion of it attributed to the client:
Fund weightasset = value of investment in asset by fund

Impactclient = Impactfund × Amount Investedclient

Sizefund

Fund Weightasset proportion of the asset’s

=
Enterprise Valueasset impact attributable to the fund
Where:

Different denominators may be used to normalise impact results

Sizefund = weighted market capitalisation of fund
according to the size of the asset, such as market capitalisation,
revenue and enterprise value (EV). We use EV as a reasonable
reflection of the size of a company’s operations and a stable
denominator for meaningful comparison over time. In contrast
The total impact of a fund comprises the sum of the impacts of its revenue has a higher degree of variability from year to year.
individual assets:
Each of our six base metrics may be calculated in this way. Results
can be expressed in terms of the total impact of a fund, a normalised
Fund Weightasset i figure such as impact per US$ 1m invested, or the impact attributable
Impactfund = ∑ Ni=1 Impactasset i ×
Enterprise Valueasset i to the amount invested by a particular client.
14 Investment Impact Framework

Calculation of relative performance

The example fund was compared to its benchmark (MSCI Europe) using two statistical methods:

• placement of the fund within one of five performance quintiles • calculation of percentage difference in performance between
(20 per cent blocks) of the benchmark fund, and its consequent fund and benchmark averages.
colour coding

Quintile analysis Difference analysis

For each theme, the assets in the benchmark fund (MSCI Europe For each theme, the total impact of the fund was calculated, as was
index) were ordered by impact performance, with the resulting list the total impact of the benchmark fund (MSCI Europe index). These
divided into five equal-numbered, and colour-coded, quintiles. The totals were then normalised (divided by fund size) to obtain impact
lowest quintile represented the lowest-performing 20 per cent of the per US$ 1m invested. The percentage performance difference
index and so on. Boundaries between the quintiles were determined between fund and benchmark is then as follows:
by straight-line interpolation between the upper bound of one
quintile and the lower bound of its neighbour. The range of values
observed within a quintile depends on the overall spread across the
benchmark. Outlier effects (eg high carbon emissions from a ‘pure
Performance
difference = ( Normalised
Normalised impact
impact
fund

benchmark
)
-1 × 100

play’ coal company) influence quintile ranges and could in principle

be excluded or normalised. However, unless outliers arise from
inaccurate data, their effects are legitimate and potentially helpful in
guiding positive asset selection. Note that in the case of the three social themes (basic needs,
wellbeing, decent work) higher impact is favourable since we want
more wellbeing and good jobs for example. A positive percentage
difference indicates the fund is performing better than its benchmark
in this regard.

In the case of the three environmental themes (resource security,

healthy ecosystems, climate stability) lower impact is favourable since
less damage to the environment is better. A negative percentage
difference indicates the fund is performing better than its benchmark
in this regard.

Summary results for the six themes are provided in the sections that
follow, while more detailed data tables supporting the analyses are
presented in Annex B.
 Investment Impact Framework 15

Theme 1 :

Basic needs

This refers to the provision of critical services to low-income people which help
them escape poverty. As both a moral and economic imperative, ending extreme
poverty lies at the heart of the SDG agenda. According to the most recent
estimates from the World Bank, in 2015 10 per cent of the world’s population lived
on less than US$1.90 a day.11 This, combined with a rising tide of inequality, acts
as a drag on economic development and threatens social cohesion.

What is the ideal measure?

This theme examines an asset’s contribution to meeting the Unsurprisingly, people in the lowest income brackets tend to prioritise
basic needs of low-income groups through the provision of spending on basic needs ahead of other goals.13 They are generally
essential services. careful about how they spend their money, implying that much if
not all of their consumption can be assumed to be meeting basic
The ‘basic needs’ approach to development emerged in the needs. For this reason our ideal metric simply tests the degree to
1970s and is now considered to be the most direct way to achieve which an asset does business with the poor, as represented by the
welfare outcomes. Over the years, governments and donors total number of people in that demographic accessing a company’s
have established local and regional institutions to improve health, services or by the total volume of business to that demographic.
education, farming and family planning practices, geared towards While the former is easier to visualise, it risks excluding companies
achieving a minimum level of welfare among the weakest groups that do not engage directly with consumers (ie business to business
in society. In practice, neo-liberal ideas prevail, favouring private (B2B)); we therefore use revenue as our proxy.
sector solutions over public sector management of development.
Services such as communications, energy and water have become Value chain effects are important. Ideally, ‘indirect impact’ should be
commoditised, regulated and restricted to paying customers included in the metric through analysis of how goods and services
rather than made available to low-income communities as a do or do not reach low-income groups. For example agricultural
development solution. or building materials enable communities to improve productivity
or construct homes, and an ideal metric would determine what
Recognising the critical role of the private sector in meeting the needs proportion of revenues generated from such products benefit low-
of low-income, underserved, or otherwise disadvantaged groups in income people.
society, our ideal metric focuses on a bundle of goods and services
known to contribute significantly to development, principally clothing, Arguably, while any company meeting the basic needs of low-income
communications, education, energy, finance, food, healthcare, people should be recognised for its contribution, ones operating
housing, sanitation, transport and water. Our approach is inspired in poor countries with limited access to basic services should be
by Maslow’s hierarchy of needs, which regards basic needs as rewarded the most. An easily available measure known as the PPP-
the building blocks for human survival, leading to wellness and adjusted International Poverty Line (where PPP refers to purchasing
fulfilment of an individual as the outcome.12 The question we examine power parity), prepared by the World Bank, is a reasonable way to
here is how to relate an asset’s activities to the provision of those discriminate between nations’ relative level of wealth.14 This indicator
building blocks. has several advantages: it is widely used, generally accepted and
16 Investment Impact Framework

frequently updated, while offering an intuitive, simple and reliable We also acknowledge that poverty has multiple causes. Its
comparator across countries. It represents the population (number of distribution and form vary considerably from area to area, and
people) living with less than US$1.90 PPP-adjusted per day in income may be subject to highly localised present and historical effects.
or consumption expenditure, with consumption the preferred version National-level indicators of wealth are clearly too broad to capture
in this case. Our ideal metric of revenues generated from low-income this fully. Ultimately, an ideal basic needs metric would test the
people should therefore be weighted by the International Poverty Line ability of a company to enable low-income people to escape both
to reflect the value of providing goods and services to poor people. the general and localised causes of their poverty. However, this
would be extremely complex, and arguably impossible to achieve
We acknowledge that some companies doing business with the outside detailed evaluations on an asset-by-asset basis, drawing on
poor, or operating within value chains which do so, may preside multidisciplinary knowledge spanning economics, anthropology and
over exploitative practices, including price inflation. While data related social sciences.
on corporate controversies is available, we note that there is
no standardised means of assessing the magnitude of those
controversies or the extent of their human impacts. Tracking the Ideal metric
number of litigations or lawsuits related to human rights abuses could
offer a potential proxy, allowing companies operating in this way to be
Total revenue from goods and services to low-income
marked down or excluded from analysis.
people, weighted by PPP-adjusted International Poverty Line

Unit: US$ per US$m invested

What can be measured today?

Standardised data on basic needs provision over time in a peer-
comparable format across companies does not exist at the current Base metric
time. If it did then longitudinal data would be available to investors to
enable them to understand how goods and services from companies
Total revenue from goods and services from clothing,
were meeting the basic needs of underserved populations. Such
communications, education, energy, finance, food,
data could also be used to examine the efficiency of non-profit and
healthcare, housing, sanitation, transport, and water
public schemes to fulfil basic needs and thus provide insight into the
relative efficiency of partners across sectors.
Unit: US$ per US$m invested
Back in the real world, one way to test the contribution of an asset
to meeting basic needs is to examine its industry sector. At a crude
level, assets operating within the following sectors are more likely
to be meeting basic needs: communications, education, energy,
finance, utilities, food, healthcare, housing, sanitation, transport
and water. Our practical (or ‘base’) metric counts revenues purely
within a sub-set of industry sectors derived from the Global Industry
Classification Standard – GICS15 (see Annex A for the list).
 Investment Impact Framework 17

Based on a review of Bloomberg’s data dictionary, the items which

most closely matched our ideal metric are presented in Table
3 below.

Table 3: Data items relating to basic needs theme

Coverage in
Theme Data items (unit) Definition Assessment
MSCI World Index (%)

Basic needs Revenue (US$) Amount of sales generated 100 Usable

Please note restriction to clothing, by a company after the
communications, education, energy, finance, deduction of sales returns,
food, healthcare, housing, sanitation, transport allowances, discounts, and
and water (see Annex A for a breakdown of sales based taxes
GICS codes)

As with our ideal metric, it would be desirable to weight the revenue

figures by the wealth of the countries where they are generated.
Unfortunately companies do not all break down their revenues by
country, while revenue data from global regions (which is more readily
available) lacks the granularity to be meaningful. We acknowledge
that some data providers – including Bloomberg – are seeking to
compile national ‘geo-revenue’ data.
18 Investment Impact Framework

Limitations
Aggregating revenue from selected industry sectors involves in different income brackets such that revenues from
compromises and hard choices. For example, in including revenues wealthier consumers would be included in the results.
from food retail, we are conscious that not all types of food are We are also conscious that industry sectors such as clothing
beneficial from a nutrition standpoint. Similarly, some financial offer a spectrum from basic goods to luxury products, all of which
services, such as payday lending, are regarded as exploitative, while are included in this measure. The use of a finer-grained revenue
companies with a monopoly over certain services (such as water) classification could potentially address these limitations, particularly
may not deliver a good service, yet would be favoured by this metric. where the diverse revenue streams flowing into a company can
In addition, our measure does not discriminate between customers be disaggregated.

Test results: basic needs

Table 4: Results for example fund

Feature Measure Results

Asset coverage Number of assets included in calculation 29%

Total impact of fund Revenue from target sectors in US$ 143,536,942

Impact of fund per US$ 1m invested Revenue from target sectors in US$ per US$ 1m invested 2,462,040

Relative performance Quintile in MSCI Europe Quintile 1 (very positive compared to benchmark)

Difference relative to MSCI Europe 174% (better)

Figure 6: Results relative to MSCI Europe (impact per US$ 1m invested in fund)

Very positive US$ 2.4m revenue

Positive

Neutral

Negative

Very negative

 
 Investment Impact Framework 19

Theme 2 :

Wellbeing
This refers to enhanced health, education, justice and equality of opportunity for
all. Nations vary in their ability to provide for the wellbeing of their citizens, with
an extreme range present in the United Nations Human Development Report each
year.16 When fairly and efficiently spent, tax revenues collected by governments
can enable investment in public institutions, services and infrastructure to
enhance national wellbeing.
What is the ideal measure?
This theme examines an asset’s contribution to enhanced According to the World Bank, the ability of a government to collect
health, education, justice and equality of opportunity for all – the and efficiently spend domestic taxes is central to financing for
things we expect the state to help us with. sustainable development, particularly in the case of lower-income
countries which may otherwise be dependent on foreign ​
The relationship between a company and the level of national assistance.17 A specific SDG target on ‘domestic resource
wellbeing in the countries where it operates is both complex and mobilisation’ exists for this purpose (17.1). A number of global
opaque. For example, can a product of a company ever be said to companies have recognised their role in achieving this ambition,
be ‘good’ for society from every perspective? A medical drug could describing effective taxation as the foundation of a healthy
save lives, but its sale may also be considered exploitative by some societies.18 19
stakeholders, and it could be misused, mis-sold, or be subject
to illicit practices. Moreover the chemicals within it may enter the A company’s total tax contribution, comprising taxes on profits,
environment in unplanned ways creating a long-term public health people, production, property and environment20 (but not sales),
risk. Similarly cars have untold benefits for mobility, but have caused offers a proxy for its contribution to national wellbeing. This approach
significant environmental and human tragedies, while road safety has the advantage of being applicable to all enterprises irrespective
worries have impacted children’s ability to roam and play. of whether they work in areas with obvious relevance to wellbeing
such as healthcare and mobility. Sales taxes are excluded from our
For this reason we have avoided the temptation to make value analysis given that potential for registered businesses to offset VAT
judgements on specific goods, services or industries. Is ice- payments with related claims.
cream bad and yoghurt good? We do not believe this question
can or should be answered. Instead our ideal metric rests on the Clearly the corruption record of a government and its effectiveness
observation that public spending on critical national services (e.g. at translating policy into practice (and in policy making itself) will
health, education, justice, crime, welfare, culture, security and influence how much tax revenue is invested in public services,
environmental protection) is raised in large part from taxation, and and how smartly these services deliver results. Transparency
companies therefore contribute to national wellbeing (‘public good’) International’s Corruption Perception Index offers a means of ranking
through the taxes and levies that they pay. governments by their perceived prevalence of corruption, and
weighting spend up or down accordingly. Spending effectiveness
may be judged on the basis of outcomes generated per unit of
public spending. The United Nations Human Development Index
(HDI) provides a means of assessing national wellbeing outcomes,
while agencies such as the World Health Organization (WHO)
and UNESCO report national spending on health and education
respectively.21 22 23
20 Investment Impact Framework

Arguably, the degree of repression exhibited by a country should time it is by no means clear how to separate the externalities of
influence the results of this metric on the basis that repressive individual sectors or companies in a form that could be measured,
regimes may use tax revenues to the detriment of their citizens’ although it is hoped that methods will evolve over time.
wellbeing. The Democracy Index compiled by the Economist
Intelligence Unit (EIU) offers one means of ranking countries’ record
in this respect.24 Such rankings are inevitably contested and politically Ideal metric
fraught and have not been included in our ideal metric at this stage.
Total tax contribution (comprising taxes on profit, people,
Finally, a company’s positive contribution to taxation should be offset
production, property and environment but not sales) minus
by its negative ‘externalities’ (ie costs offloaded onto society) since
negative externalities, adjusted by national corruption and
the public purse is often called upon to address their consequences.
public spending effectiveness
For example, coal-fired power stations and particulate (and other)
emissions from vehicles have contributed to appalling air quality
in many parts of the world, burdening public health services with Unit: US$ per US$m invested
respiratory and cardiac disease, and cancer. However, at the current

What can be measured today?

Although transparency is improving, corporate tax disclosure Report), it is unclear whether the data will be made available to
is a sensitive, politically charged topic supporting an industry of investors. Moreover BEPS is non-binding in nature. Given these
specialists on both sides seeking to outwit each other. With public constraints our base metric focuses on the total tax contribution of a
spending an essential ingredient of national wellbeing this situation company across all jurisdictions, with no refinements.
is at once frustrating and tragic. We can expect data availability to
improve in the coming years as the Base Erosion and Profit Shifting
(BEPS) plan by the Organisation for Economic Co-operation and Base metric
Development (OECD) and G20 countries requires multinational
enterprises to engage in country-by-country reporting, providing
Total tax contribution
annual information about the taxes paid in each jurisdiction.25

Although Action 13 of BEPS provides a template for reporting Unit: US$ per US$m invested
annually and for each tax jurisdiction (the Country-by-Country
 Investment Impact Framework 21

Based on a review of Bloomberg’s data dictionary, the items which

most closely matched our ideal metric are presented in Table
5 below.

Table 5: Data items relating to wellbeing theme

Coverage in
Theme Data items (unit) Definition Assessment
MSCI World Index (%)

Wellbeing Cash paid for taxes (US$) Actual cash paid for income taxes, net of any tax >90 Usable
refunds. Unless refunds exceed taxes paid, the
number will be positive.

Taxes paid to Total amount of taxes paid directly to <5* Not usable. low
governments (US$) governments. Includes all taxes, royalties, and coverage.
duties paid, not just those taxes paid on income.
Does not include tax levied on consumption
such as value-added taxes, payroll and social
security taxes, or social payments.

* coverage in MSCI Europe

22 Investment Impact Framework

Limitations
The use of a single (global) tax contribution figure fails to the asset highlighted in corporate reports. In addition,
acknowledge which jurisdictions benefit and hence where and a metric which includes taxes on people (payroll and social
how tax revenues are spent. This is important as taxes spent in payments) would be desirable as these can be significant
lower-income countries could, in principle, have a greater impact in scale. Naturally we acknowledge that tax regimes vary from
on wellbeing than in richer economies with more advanced public jurisdiction to jurisdictions26, with corporate taxation playing a lesser
services. In the absence of country specific tax information, investors role in some places than others.
can estimate where tax is paid based on the geographic focus of

Test results: wellbeing

Table 6: Results for example fund

Feature Measure Results

Asset coverage Number of assets included in calculation 96%

Total impact of fund Total tax contribution in US$ 6,183,760

Impact of fund per US$ 1m invested Total tax contribution in US$ per US$ 1m invested 106,068

Relative performance Quintile in MSCI Europe Quintile 1 (very positive compared to benchmark)
Difference relative to MSCI Europe +355% (better)

Figure 7: Results relative to MSCI Europe (impact per US$ 1m invested in fund)

Very positive US$ 0.1m tax

Positive

Neutral

Negative

Very negative
 Investment Impact Framework 23

Theme 3 :

Decent work

This refers to the creation of secure, socially inclusive jobs and working
conditions for all. According to the International Labour Organization (ILO), global
unemployment is set to fall slightly to 5.5 per cent in 2018.27 However, the quality
of jobs being created remains a major challenge, with the reduction of vulnerable
employment stalling since 2012. This means that almost 1.4 billion workers (40 per
cent of all workers) were estimated to be in vulnerable employment in 2017, with
an additional 35 million expected to join them by 2019.28 In developing countries,
vulnerable employment affects three out of four workers.28

What is the ideal measure?

This theme examines an asset’s contribution to secure, socially Our ideal metric counts jobs only when they can be considered
inclusive jobs and working conditions for all. ‘good’ at some level. While pay is not a perfect proxy for job quality, it
is an important contributing factor. We therefore count jobs only when
Decent work has two dimensions: the number of jobs supported workers earn the equivalent of at least 60 per cent of the country’s
by a company and the meaningful characteristics of those jobs median wage30 – a readily available threshold used throughout the
(for example pay, job security and working conditions). A company OECD as a measure of relative income poverty (living wage).
can contribute directly to decent work through formal employment
contracts, or indirectly through the use of contractors and in its wider Formal open-ended contracts are correlated with job stability,
supply chain. All such jobs should be counted (not only full time) in identified by the OECD as a key indicator for job quality. According to
recognition of the value of part-time employment to many people. the OECD, the labour market is divided between those who are well
protected with open-ended contracts in large firms and those who
The provision of decent work is arguably more important in areas are marginally attached with temporary or atypical contracts – the
of low employment or vulnerable labour. Hence the amount of work ‘duality’ in the labour market. Flexible employment contracts have
provided by a company may be adjusted by the rate of employment29 their merits because they facilitate the adjustment of the labour force
in those labour markets, as compiled by the International Labour when necessary, but these are known to increase job insecurity
Organization (ILO). We acknowledge that this favours companies rather than to serve as a stepping stone for temporary workers.31
operating in low-employment regions, but companies offering
significant opportunities in higher-employment countries are
also rewarded.
24 Investment Impact Framework

Finally, we have not yet found an objective way to assess working

conditions. We acknowledge that many information providers review Ideal metric
corporate policies on child labour, health & safety, discrimination and
rights of association at work; and that information on infringements Total number of open-ended employment contracts minus
and controversies is also available. Companies with ongoing lawsuits jobs below 60 per cent median wage (living wage) minus jobs
or with significant patterns of lawsuits over the last five years should in poor working conditions (health & safety, discrimination,
therefore be penalised. However, this risks downplaying problems rights of association), adjusted by national employment rate
affecting under-empowered workers (who are less likely to be
assertive) or issues arising in less-litigious cultures. More research is
needed to identify the correct approach. Unit: jobs per US$m invested

What can be measured today?

Currently, few companies report on the total number of jobs they
provide by country, meaning it is not possible to adjust those Base metric
numbers by national employment levels. It is easier to find regional
breakdowns of the workforce but these provide little insight at the
Total number of employees based full time equivalent
national level. In addition, companies do not generally reveal the
(FTE) workers
types of contracts they offer to staff (eg open-ended or temporary),
nor estimate indirect job creation through the supply chain. Finally,
details of compensation levels are generally restricted to top Unit: FTEs per US$m invested
management, meaning that it is difficult to assess how many jobs fall
below the threshold of a living wage and, as we have noted above,
we currently lack a standard means of assessing outcomes relating
to working conditions.

For these reasons it is not possible to apply our ideal metric today.
A reasonable, practical alternative is to assess the total direct
employment of a company (ie without consideration of supply chain)
expressed in full-time equivalent workers (FTEs) which is collected by
information providers today. Issues of pay, contract type and working
conditions are not considered in this metric.
 Investment Impact Framework 25

Based on a review of Bloomberg’s data dictionary, the items which

most closely matched our ideal metric are presented in Table
7 below.

Table 7: Data items relating to decent work theme

Coverage in MSCI
Theme Data items (unit) Definition Assessment
World Index (%)

Decent work Total number of jobs Number of people employed by the 93.1 Usable
company, based on the number of full time
equivalents. If unavailable, then the number
of full time employees is used, excluding part
time employees.

Policy on child labour Indicates whether the company has implemented 91.8 Not usable: framework
any initiatives to ensure the prevention of child does not include policies
labour in all parts of its business.

Health and safety policy Indicates whether the company has recognized its 91.9 Not usable: framework
health and safety risks and responsibilities and is does not include policies
making any effort to improve the management of
employee health and/or employee safety.

Human rights policy Indicates whether the company has implemented 91.9 Not usable: framework
any initiatives to ensure the protection of the rights does not include policies
of all people it works with

Social supply Indicates whether the company has implemented 91.8 Not usable: framework
chain management any initiatives to reduce the social risks in its supply does not include
chain. Social risks might include poor working processes
conditions, the use of child or forced labour, lack
of a living, fair or minimum wage etc.
26 Investment Impact Framework

Limitations
In reducing this theme to number of FTEs many subtleties in demand areas, which is clearly necessary to fulfil the
corporate labour practices are discounted: the metric more properly ambitions of the SDGs. Lastly, in counting FTEs (as opposed
tells us about the corporate contribution to work rather than ‘decent’ to jobs or contracts), the metric estimates the amount of time
work. Similarly, without adjustment by national employment rate the contributed to an organisation rather than the number of individuals
results cannot establish whether work is being created in high- who are employed.

Test results: decent work

Table 8: Results for example fund

Feature Measure Results

Asset coverage Number of assets included in calculation 50%

Total impact of fund Total number of FTEs 112

Impact of fund per US$ 1m invested Total number of FTEs per US$ 1m invested 1.93

Relative performance Quintile in MSCI Europe Quintile 2 (positive compared to benchmark)

Difference relative to MSCI Europe 6% (better)

Figure 8: Results relative to MSCI Europe (impact per US$ 1m invested in fund)

Very positive

Positive 1.9 jobs

Neutral

Negative

Very negative
 Investment Impact Framework 27

Theme 4 :

Resource security

This refers to the preservation of natural resources through efficient and

circular use. Current models of production may be described as linear: virgin
materials are extracted from the ground (or grown) and used to make products
that are consumed. This gives rise to chronically high levels of waste and
creates a non-sustainable dependence on inputs of new (and often finite) natural
resources. This model cannot work in the long run, and there are signs that it is
reaching its limits.32

What is the ideal measure?

This theme examines an asset’s contribution to securing natural such as crops, biofuels and timber), virgin materials are in theory
resources for the future through efficient and circular use. renewable but in practice production methods do not achieve this.
While losses into the environment are less problematic than hard
A linear model of production is sometimes described as ‘take-make- commodities, effort is required to return their nutrients back to nature
waste’, implying resources are sucked through a production process (eg through anaerobic digestion).
and jettisoned into the environment after use. In a world of limited
stocks of natural resources and rising demands from an expanding Circular operations are restorative by design. For manufactured
and more ambitious population, this is clearly deeply unsustainable. goods, circular processes often involve repair, reuse, refurbishment
Plastic waste littering our oceans is one visible consequence of linear and material recycling processes. In biological cycles, loops are
production. There are countless others. closed by returning non-toxic materials to the soil and, of course, by
sustaining the health of the production environment. The circularity
The alternative – the so-called ‘circular’ economy – rests on three of an asset can be determined by the amount of non-sustainable
principles:33 material it consumes within a value chain and the amount of waste its
products lead to in the environment. The smaller these amounts the
1. d esign out waste and pollution from production processes more circular the operation (zero would imply perfectly circular), and
2. keep products and materials in use rather than wasted the more resilient the asset will be to material price fluctuations and
3. regenerate the natural systems on which continued waste regulation.
production depends.
Different measures are required for hard and soft commodities. The
Circular operation seeks to decouple production from sources of circularity of hard commodity flows can be measured by the amount
unsustainability in the supply chain. In the case of ‘hard’ commodities of virgin raw material contained within a company’s output (its end
(inorganic materials such as metals and minerals extracted from product) in addition to any losses of material to the environment.
the Earth’s crust), any flow of virgin material is unsustainable as the When the sum of these two amounts is zero, production is circular.
resources in question are finite, and any losses to the environment,
notably following the use phase, should be prevented (for example
plastic in oceans). In the case of ‘soft’ commodities (organic materials
28 Investment Impact Framework

Similarly, the circularity of soft commodity flows can be measured Finally, not all material flows are equally problematic. Finite materials
by the amount of unsustainably produced material in the end which are rare or otherwise in short supply are arguably a higher
product in addition to any waste material lost to the environment. priority for conservation, as are toxic materials whose entry into
The definition of an ‘unsustainably’ sourced soft commodity remains the environment within products can have damaging social and
somewhat subjective, but a proxy at the present time would be environmental consequences. These ‘carrying capacity’ factors
material not produced to recognised sustainability standards (eg attract a more forceful weighting in our ideal metric.
Forest Stewardship Council timber, organic agriculture, and so on).
This approach works well with fibre-based soft commodities such
as timber and cotton since they follow similar pathways to hard Ideal metric
commodities in that they can be recycled and products can be
repaired and, in some cases, remanufactured. Food is quite different
Hard commodities:
however: the generally accepted sustainable route to recover value
Virgin material content of end products (adjusted by scarcity)
from surplus (waste) food is anaerobic digestion (AD) which allows
plus waste lost to the environment (adjusted by toxicity)
nutrients to be returned to nature.

In summary, an ideal metric for resource security reflects a Unit: metric tonnes (t) per US$m invested
company’s progress from linear to circular operation. This requires a
deep understanding of its value chain material flows: where inputs are
sourced (directly or through supply chains), efficiency of operation, Soft commodities:
and what happens to materials post-production, including the use Non sustainably certified content of end products plus waste
phase. This requires data on: not specifically returned to nature

• whether input materials are from virgin, certified sustainable or Unit: metric tonnes (t) per US$m invested
reused sources
• operational efficiency in terms of different types of direct
waste streams
• the durability and repairability of products
• alternative business models (such as ‘servicisation’, leasing and
the broader sharing economy)
• end-of-use phase material flows, including material to landfill,
incineration, recycling and/or re-manufacturing.
 Investment Impact Framework 29

What can be measured today?

It remains challenging for companies to derive the data needed for Based on a review of Bloomberg’s data dictionary, the items which
our ideal metric. To provide investors with information on the scarcity most closely matched our ideal metric are presented in Table
and toxicity of materials used, for example, companies would need 9 below.
to disclose detailed information about the composition, form and
quantity of the chemicals used across their product range, and the
remaining global stocks of (and demand for) each material. Among Base metric
other challenges, this raises questions of commercial sensitivity.
Moreover, outside some specific product categories (for example
Total net waste (total waste arisings minus total
electronics equipment subject to the European Commission’s
waste recycled)
WEEE Directive) our capacity to track the flows of product into the
environment remains limited.
Unit: metric tonnes (t) per US$m invested
For these reasons it is not possible to apply our ideal metric today.
A practical, if far less attractive, alternative is to measure the waste
arising from companies’ direct operations, which is one of the few
relevant sources held by information providers today. Our base metric
is therefore the total net waste produced, defined as total waste
arising minus total waste recycled.

Table 9: Data items relating to resource security theme

Coverage in
Theme Data items (unit) Definition MSCI World Assessment
Index (%)

Resource Total waste (metric tonnes) Total amount of waste the company discards, 42.9 Usable
security both hazardous and non-hazardous, in
thousands of metric tonnes.

Total waste recycled Total amount of waste the company recycles, in 31.9 Usable
(metric tonnes) thousands of metric tonnes.

Raw material used Total amount of raw materials consumed by the 9.7 Not usable: framework focuses
(metric tonnes) company, in thousands of metric tons. on product content and losses
to the environment, not inputs

Recycled materials (%) Percentage of raw materials used from <5 Not usable: low coverage
recycled sources.

Raw materials from Percentage of raw materials used by the <5 Not usable: low coverage
sustainable sources (%) company that have been certified to an
environmental or social standard.
30 Investment Impact Framework

Limitations
Measuring waste from a company’s direct operations clearly falls material flows generated by a company (its products),
short of testing how a company is transitioning to circular operation. not to mention the scarcity, toxicity and renewability of
The principal drawback is that it doesn’t shed light on the nature those materials. Lastly, as it is currently specified the base metric
of a company’s products, nor the fate of those products after they rewards companies with strong recycling rates when we know
have entered the economy, and as such represents only a limited that recycling is a less elegant solution than designing out material
glimpse into the circularity of the operation as a whole. In short, demand, re-use, repair and remanufacturing processes.
focusing purely on its operational waste misses the most significant

Test results: resource security

Table 10: Results for example fund

Feature Measure Results

Asset coverage Number of assets included in calculation 36%

Total impact of fund Total net waste in tonnes 266

Impact of fund per US$ 1m invested Total net waste in tonnes per US$ 1m invested 4.6

Relative performance Quintile in MSCI Europe Quintile 4 (negative compared to benchmark)

Difference relative to MSCI Europe -99% (better)

Figure 9: Results relative to MSCI Europe (impact per US$ 1m invested in fund)

Very positive

Positive

Neutral

Negative 4.6 tonnes waste

Very negative
 Investment Impact Framework 31

Theme 5 :

Healthy ecosystems

This refers to the maintenance of ecologically sound landscapes and seas for
people and nature. For millennia humans have converted land for their own
purposes. To begin with the effects were modest, but the pace stepped up during
the industrial revolution, and particularly since 1950, when a ‘Great Acceleration’
in economic output, technology and population occurred, driving nature to its
limits.34 The ‘ecosystem services’ on which all life depends have shown resilience
under pressure, but their ability to supply freshwater, clean air and abundant food
is now in jeopardy.

What is the ideal measure?

This theme examines an asset’s contribution to the preservation The relationship between economic activity and natural capital is
of ecologically sound landscapes and seas. complex, dynamic and localised. A metric capable of revealing
this relationship in full would be dauntingly sophisticated and most
A turning point came in the 1970s when human demands on nature likely dependent on where a value chain operates, and how its
(our ‘ecological footprint’) for the first time outstripped the planet’s product streams interact with natural systems. Although work is
ability to regenerate its ‘biocapacity’.35 Since that point we have underway in academic institutions38, we do not believe it is suitable
been living off the planet’s capital rather than its interest. This state yet for mainstream investors. For this reason, as with other ideal
of ‘ecological deficit’ means that we are eroding our ecological life metrics in this report, we propose a more amenable proxy which
support system on which we and future generations depend.36 distils complexity into a simpler, more usable measure. This is
land degradation.
This is the situation today. Before long, however, we can expect
the human population to move closer to 11.2 billion, with a resulting Land degradation may be defined as a long-term loss of ecosystem
increase in demand for food, water and energy.37 On current function and productivity caused by disturbances from which the
trends, many of these people will be eating more than at present, land cannot recover unaided.39 It is estimated to affect one third
and differently, including a diet which is richer in dairy, meats and of global arable land.40 41 Natural processes play a part in land
processed foods – in short an energy- and water-intensive diet. degradation but by far the most damage is caused by human
activities. Land degradation takes many forms, including the loss
Whilst many large companies have strategies in place to reduce of soil, or soil health, in croplands; loss of habitat and hydrological
their environmental impacts, few understand how to lessen their function in urbanising areas; deforestation or over-logging in forests;
dependence on natural systems such as forests, soils, wetlands, overgrazing and shrub encroachment in rangelands; and drainage
atmosphere and oceans in such a way that those resources – and eutrophication in wetlands.42 The process of degradation is
which may be collectively described as ‘natural capital’ – are able inextricably linked to loss of biodiversity.
to regenerate. Not a single company could be said to be restorative
in this respect, presenting a source of long-term systemic risk to
business, livelihoods and economy.
32 Investment Impact Framework

All continents are experiencing land degradation, with particularly Two factors are considered when assessing the extent of
high incidences down the west coast of the Americas, across the land degradation:
Mediterranean region of Southern Europe and North Africa, across
the Sahel and the Horn of Africa, and throughout Asia. Typical 1. t he current status of land (its degree of degradation) in a
consequences include the reduction of soil quality, biodiversity loss particular location
and water resources depletion. Large inland water bodies are under 2. the trend in degradation (or recovery) at that location.
pressure from a combination of reduced inflows and higher nutrient
loading from the excessive build-up of nitrogen and phosphorus.
Many rivers do not reach their natural end points and wetlands are Ideal metric
disappearing.43
Area of degraded land utilised by an asset
The international community is working to halt land degradation,
and restore degraded ecosystems. A specific SDG indicator exists
to assess global progress in this respect. Two UN bodies, the Food
and Agricultural Organisation of the United Nations (FAO) and more Unit: hectares (ha) per US$m invested
recently the United Nations Convention to Combat Desertification
(UNCCD) jointly monitor land degradation, desertification and
drought globally.
 Investment Impact Framework 33

Land degradation status

This is the degree of degradation of land at a particular moment in
time, understood as its capacity to provide ecosystem services.
Degradation can be subcategorised into several biophysical forms.
Figure 10 below shows the results from FAO’s 2011 Global Land
Degradation Information System assessment, which takes into
account the loss of biomass, soil health, water availability and quality
and biodiversity over a period of around 20 years.44

Figure 10: Land degradation status (based on FAO original)

Severe High Moderate Low Barelands Water Urban land

Different parts of the world may be classified by the extent of their land degradation.
34 Investment Impact Framework

Land degradation trend

This is the actual (or potential) change taking place in a given piece of
land, revealing the stability (or not) of its current status. Trends can be
either negative (degrading) or positive (improving) and are illustrated in
Figure 11.

Figure 11: Land degradation trend (based on FAO original)

Low Moderate High Severe Barelands Water Urban land

The colours indicate rates of land degradation.

 Investment Impact Framework 35

Our ideal metric applies FAO’s degradation estimates (status and Overlaying Earth observation data with the geographic location
trend) to land associated with individual assets, spanning their of business activities in this way has the advantage of providing
operational footprint plus areas upon which the assets are reliant immediate scale. However, in the current case FAO’s maps are
for supply or product utilisation. This combined area is weighted based on coarse resolution satellite data which is largely insensitive
according to the degree of degradation present, resulting in a to the mitigating activities of companies, and therefore insufficient to
‘hectare equivalent’ figure per asset. Land with low degradation track corporate performance with respect to healthy ecosystems.
which is stable or restoring will yield the lowest figures, whereas Higher spatial resolution maps combined with advanced analysis are
degraded land in negative trend will yield the highest. A similar expected to offer increasing granularity in future.
approach could be applied to oceans and seas using data on water
quality, food provision, carbon storage and biodiversity.45

What can be measured today?

At the present time few mainstream data are available to investors latter must be managed carefully, it is clearly abundant in coastal
with any significant correlation with land degradation. At face regions in contrast to fresh water reserves which are under pressure
value, corporate water consumption can be said to relate to land in almost all regions of the world. Fresh water plays an essential role
degradation in that the presence of water in the natural environment in maintaining ecosystem health; without it life simply cannot exist.
is critical to its maintenance and functioning. Hence companies
that use water excessively in water-stressed regions or which
pollute water stocks and flows (including rivers, wetlands, seas, Base metric
groundwater) can be highly damaging to both land and sea.
Fresh water use (comprising surface water plus groundwater
Companies may withdraw water directly from aquifers, lakes
plus municipal water)
and rivers, via piped (municipal) supply, or collect it directly from
precipitation or wastewater sources. They may also obtain it from
seawater sources, notably for cooling. The impact of using water Unit: cubic meters (m3) per US$m invested
is a function of its abundance – or indeed scarcity – in the location
where it is obtained, and the condition (quality) in which any water is
returned into the environment. Tools such as the World Resources
Institute’s Aqueduct and WWF’s Water Risk filter tool help to pinpoint Based on a review of Bloomberg’s data dictionary, the items which
water scarcity in different regions of the world.46 47 most closely matched our ideal metric are presented in Table 11 right.

Given our focus on healthy ecosystems, we are primarily concerned

with the consumption of fresh water rather than salt water. While the
36 Investment Impact Framework

Table 11: Data items relating to healthy ecosystems theme

Coverage in MSCI
Theme Data items (unit) Definition Assessment
World Index (%)

Healthy Surface water Amount of water diverted for use by the 10.6 Usable
ecosystems withdrawals (thousands organisation from all surface freshwater sources,
of cubic metres) including but not limited to lakes, rivers, and
streams, in thousands of cubic metres. Includes
cooling water

Municipal water Amount of water diverted for use by the 19.8 Usable
use (thousands of organisation from municipal water treatment
cubic metres) facilities, in thousands of cubic metres. Includes
cooling water.

Groundwater Amount of water withdrawn by the organization 14.9 Usable

withdrawals (thousands from underground reservoirs, in thousands of
of cubic metres) cubic metres. Includes cooling water

Total water use Total amount of water used to support a 42.1 Not usable: framework focuses
(thousands of company’s operational processes, in thousands on freshwater, not salt water
cubic metres) of cubic metres. The sum of all water withdraws
for process water and cooling water and all water
retained by company facilities through recycling.

Total water recycled Amount of process water and cooling water 8.5 Not usable: framework focuses
(thousands of used by the company’s operations that was on water demand from the
cubic metres) derived from internal recycling/reuse processes, environment, not management
in thousands of cubic metres. Includes cooling of water by an organisation
water.

Water withdrawal Amount of water diverted for use by the 27.4 Not usable: framework focuses
(thousands of organisation from all sources, including but on freshwater, not salt water
cubic metres) not limited to surface, ground, saltwater, and
municipal, in thousands of cubic metres. Includes
cooling water.

Water stress (%) Percentage of fresh water withdrawn in regions <5 Not usable: low coverage
with High or Extremely High Baseline Water Stress
 Investment Impact Framework 37

Limitations
Although water is essential to ecosystem function, there is at best analysis is perfectly feasible it is not easily available to investors at
a weak correlation between operational water consumption of a scale at the current time. The effects of a company on water quality
company and the condition of the land it utilises. The integrity of are also not considered by this metric. This is potentially a major
the metric would be improved slightly if local water scarcity was drawback when considering activities such as agriculture, industrial
taken into account as this would gauge the potential stress on the processes and energy production which can affect water quality
landscape created by water demand. To do so the geographic or alter its properties in different ways with consequences for the
areas in which a company operates (or is dependent) would need to environment (e.g. temperature).
be overlayed with sufficiently granular water stress maps. While this

Test results: healthy ecosystems

Table 12: Results for example fund

Feature Measure Results

Asset coverage Number of assets included in calculation 18%

Total impact of fund Fresh water use in cubic metres 30,732

Impact of fund per US$ 1m invested Fresh water use in cubic metres per US$ 1m invested 527

Relative performance Quintile in MSCI Europe Quintile 3 (neutral compared to benchmark)

Difference relative to MSCI Europe -89% (better)

Figure 12: Results relative to MSCI Europe (impact per US$ 1m invested in fund)

Very positive

Positive

Neutral 527 cubic metres water

Negative

Very negative
38 Investment Impact Framework

Theme 6 :

Climate stability

This refers to the global effort to curb the Earth’s temperature rise.
A breakthrough agreement was reached between the world’s nations in Paris in
December 2015 which commits all participating members of the United Nations to
hold global temperature rise “well below” 2°C above pre-industrial levels, with an
aspiration (regarded by scientists to be a necessity) to limit warming to 1.5°C.
What is the ideal measure?
This theme examines an asset’s alignment with the Climate change performance is conventionally understood to be
Paris consensus. a function of a company’s greenhouse gas (GHG) emissions. This
term includes a basket of gases emitted by companies ranging
Since the first report from the Intergovernmental Panel on Climate from carbon dioxide to methane, nitrous oxide, hydrofluorocarbons
Change (IPCC) in 1990, a consensus has been building among (HFCs), perfluorocarbons (PFCs), sulphur hexafluoride and nitrogen
scientists, policymakers, business leaders and the general public that trifluoride. Collectively they are measured in tonnes of carbon dioxide
the world must transition to a low (most likely zero) carbon economy equivalent (tCO2e). Emissions are broken down into Scope 1 (arising
to address the vast and adverse effects of anthropogenic climate from a company’s operations), Scope 2 (emissions from bought
change. Following the Paris Summit in 2015, that consensus is energy, including electricity), and Scope 3 (emissions from suppliers
now overwhelming. and customers).

Achieving a rapid and successful transition to zero carbon will rely Whilst GHG reporting offers a snapshot of emissions performance,
on investing in green infrastructure, large-scale energy efficiency by itself it does not say whether an asset’s emissions path is
solutions, zero emissions mobility and a radical change in the consistent with the Paris consensus. Ideally we want to know which
energy mix so that the upstream and downstream emissions of warming scenario a company is aligned with, for example 1.5°C, 2°C,
companies, as well as their operational footprints, are brought onto or whether its behaviour is taking us in a more dangerous direction
a steeply downward path. This theme explores how investors should such as 3°C, 4°C or higher). Conceivably it may have eliminated
determine whether their funds are aligned with this goal in order to emissions already (‘net zero’) and be aligned with no further warming
communicate this to an increasingly concerned public. beyond the 1°C rise already witnessed across the planet.

A large part of the emissions burden of a company occurs indirectly Targets adopted by companies to reduce GHG emissions are
as a consequence of the production of its raw materials and related considered ‘science-based’ if they are consistent with the Paris
supplies, and the use of its products and services. For this reason, a consensus of 2°C warming.48 Sector transition pathways for
methodology that seeks a comprehensive view of a firm’s impact on meeting a 2°C scenario have been prepared by the International
climate stability must go beyond operational carbon footprinting to Energy Agency (IEA)49 but as yet no standard has been agreed. We
capture its broader upstream and downstream performance. note that the Task Force on Climate-related Financial Disclosures
(TCFD) recommends that financial institutions identify and manage
climate risks, which include the use of stress tests against various
climate scenarios.50
 Investment Impact Framework 39

This is a story of much work but little standardisation. In particular are seen across the economy, it is possible to estimate how quickly
there remains no standard method of estimating a company’s we wi exhaust this budget and reach 2°C. Conversely, it is possible
warming pathway based on its emissions data, nor how to estimate what level of warming will be seen in 2050 if this particular
responsibilities for emissions reduction should be allocated fairly in level of emissions were to be maintained. Despite the accepted
the economy (for example should high-performing firms in carbon- uncertainties surrounding the IPCC’s modelling, this method allows
intensive sectors be rewarded more than poor-performing firms in us to convert today’s emissions figures from companies into future
low-carbon sectors?). warming scenarios with relative ease.

Given the urgency of emissions reduction, we believe a simpler At present (2018), global GHGs are being emitted at just short of
method of understanding an asset’s alignment with global 40 GtCO2 per year. At this level the IPCC’s global carbon budget of
warming is now justified. In brief the problem may have been over- 1,000 GtCO2 would be consumed within 25 years. More troubling
intellectualised. A certain ‘budget’ is available for GHG emissions is the budget to 1.5°C: at just 400 GtCO2 this will be exhausted in
beyond which temperature will exceed a predictable amount. For ten years at present levels of emissions (see red highlight in Table
example, the budget available as of 2011 to keep warming lower than 13 below). Given the IPPC’s stark warning in October 2018 that
2°C is estimated by the IPCC to be 1,000 GtCO2 with 66 per cent temperatures should be stabilised at 1.5°C rather than 2°C, the
confidence (see amber highlight in Table 13 below).51 52 If a company importance of investor action cannot be overstated.53
emits a certain amount of GHGs today and emissions at this intensity

Table 13: Remaining global carbon budget as of 2011 (based on IPCC)

Cumulative C02 emissions from 1870 in GtC02

Net anthropogenic warming <1.5°C <2°C <3°C

Fraction of simulations meeting goal 66% 50% 33% 66% 50% 33% 66% 50% 33%

Complex models, RCP scenarios only 2250 2250 2550 2900 3000 3300 4200 4500 4850

Simple model, WGIII scenarios No data 2300 2400 2550 2900 2950 n.a. 4150 5250
to 2350 to 2950 to 3150 to 3200 to 3800 to 5750 to 6000

Cumulative C02 emissions from 2011 in GtC02

Complex models, RCP scenarios only 400 550 850 1000 1300 1500 2400 2800 3250

Simple model, WGIII scenarios No data 550 600 750 1150 1150 n.a. 2350 3500
to 600 to 1150 to 1400 to 1400 to 2050 to 4000 to 4250

Total fossil carbon available in 2011: 3670 to 7100 GtC02 (reserves) and 31300 to 50050 GtC02 (resources)
40 Investment Impact Framework

All companies emitting more than their fair share of the global
carbon budget can be considered to be out of alignment with the Ideal metric
Paris ambition, and hence negatively impacting the planet’s future,
including its economic prospects. This is why progressive businesses Alignment to future warming scenario based on consumption
and policymakers, supported by civil society organisations and of global carbon budget
members of the public, are proposing a simple target to be reached
by all companies by 2050: net zero emissions.54
Unit: degrees Celsius (°C) warming trajectory

What can be measured today?

Whilst it is feasible to apply our ideal metric today, information
providers are not yet providing this analysis. At the current time, our Base metric
proposed base metric therefore considers a company’s Scope 1
(operational) and Scope 2 (bought energy, including electricity) GHG
Total greenhouse gas (GHG) emissions (Scope 1 and 2)
emissions which are generally well understood and reported today.

Unit: tonnes (t) carbon dioxide equivalent (CO2e) per US$m invested
 Investment Impact Framework 41

Based on a review of Bloomberg’s data dictionary, the items which

most closely matched our ideal metric are presented in Table
14 below.

Table 14: Data items relating to climate stability theme

Coverage in MSCI
Theme Data items (unit) Definition Assessment
World index (%)

Climate stability GHG emissions Scope 1 Direct greenhouse gas emissions of the 42.3 Usable
(tonnes carbon company. GHGs are defined as those gases
dioxide equivalent) which contribute to the trapping of heat in
the Earth’s atmosphere and they include
carbon dioxide (CO2), Methane, and Nitrous
Oxide. Scope 1 emissions are those emitted
from sources that are owned or controlled
by the reporting entity.

GHG emissions Scope 2 Indirect greenhouse gas emissions of the 41.7 Usable
(tonnes carbon company. Scope 2 emissions are those
dioxide equivalent) emitted that are a consequence of the
activities of the reporting entity, but occur
at sources owned or controlled by another
entity. The principle source of indirect
emissions is emissions from purchased
electricity, steam and/or heating/cooling.

GHG emissions Scope 3 All non-Scope 2, indirect emissions, such as 34 Not usable: framework
(tonnes carbon the extraction and production of purchased (base metrics) do not
dioxide equivalent) materials and fuels, transport-related cover value chain
activities in vehicles not owned or controlled
by the reporting entity, electricity-related
activities (e.g. transmission and distribution
losses) not covered in Scope 2, outsourced
activities, waste disposal, etc.

CO2 reduction targets Indicates whether the company has 91.8 Not usable: framework
implemented any initiatives to reduce its does not include
environmental emissions to air. policies
42 Investment Impact Framework

Limitations
Arguably Scope 3 emissions (from supply chains and product use) Moreover the wide range of indirect emissions which can be
should be included in the base metric since they are increasingly included under Scope 3, together with more complex data collection
reported by companies. However, for consistency none of the processes and estimations, has led to a lack of consistency in
base metrics presented in this report include value chain impacts. reporting at the current time.

Test results: climate stability

Table 15: Results for example fund

Feature Measure Results

Asset coverage Number of assets included in calculation 32%

Total impact of fund Total GHG emissions in tonnes carbon dioxide 2,264
equivalent

Impact of fund per US$ 1m invested Total GHG emissions in tonnes carbon dioxide 39
equivalent per US$ 1m invested

Relative performance Quintile in MSCI Europe Quintile 4 (negative compared to benchmark)

Difference relative to MSCI Europe -72% (better)

Figure 13: Results relative to MSCI Europe (impact per US$ 1m invested in fund)

Very positive

Positive

Neutral

Negative 39 tonnes CO2 equivalent

Very negative
 Investment Impact Framework 43

Conclusions

This report has sought to give investors greater visibility over their contribution to
achieving the SDGs. Clarity here is critical if investors are to direct capital towards
the solutions to the SDGs, and away from activities which compound social and
environmental challenges.
Two distinct perspectives are material here: that of asset owners (and There is one major difference between the reporting of financial and
their beneficiaries) and that of investment managers who ultimately sustainability information however: the quality, completeness and
make investment decisions. standardisation of the underlying data. Financial disclosures have
been standardised and audited across geographies for many years,
From an asset owner perspective (ie institutional and retail clients and although initiatives exist in the realm of social and environmental
of investment managers) there is increasing demand for reporting reporting, the results lack rigour and consistency by comparison.
social and environmental impact. However, the level of granularity While this problem is solvable it will require sustained commitment
required typically does not extend beyond an overview of the main and collaboration to get right.
environmental and social characteristics of a fund, with more in-depth
information potentially unnecessary. Hence we took the decision to Sustainability reporting is voluntary in nearly all markets. Where it
distil the 17 SDGs into just six impact themes, and to communicate is not, it is typically left to the disclosing party to determine which
fund performance graphically. Interestingly, it was discovered many factors are ‘material’ and which can be omitted. Current disclosure
decades ago that humans find it difficult to hold more than seven standards are voluntary and the data provided are rarely assured by
(plus or minus two) concepts in their minds at any one time.55 This a third party. Those who aggregate data on behalf of investors face
insight is consistent with our experience of enabling business, significant problems with quality, completeness and comparability.
government and finance leaders to resolve their strategic responses Mandatory disclosure of impact performance to an internationally
to sustainability. agreed standard, appearing in annual reports and accounts, and
independently assured, would be a natural way to address this.
Investment managers on the other hand need more sophisticated
tools to make decisions, based on more granular data. To the extent As Paul Smith, President and Chief Executive of the CFA Institute
they see opportunities to apply the metrics in this report, they will recently said in the Financial Times, “The next generation of investors
want to familiarise themselves with the methodologies and data – and a growing number in this generation – will not accept the
sources we have used – which is why we have introduced them absence of precise quantitative frameworks as an excuse for inaction.
with replication in mind. Moreover they will wish to establish how the They are demanding that the investment industry responds to their
use of the metrics will enhance interest in their funds, or allow more desire to proactively address some of society’s most intractable
profound insights into future risks and opportunities. While we make problems.” 56
no claims in this area, we do observe a rise in demand for SDG-
linked fund disclosures indicative of an overall market trend. This is We hope that the Investment Impact Framework will make a
hardly surprising given the high and increasing levels of attention subtle but important contribution to this debate. Most investment
being focused on global sustainability challenges. practitioners would agree that the data available to determine their
social and environmental impacts currently lack the robustness –
Effective disclosure of fund-level impact will require an and coverage – commonplace in financial reporting. By setting out
accommodation of perspectives between asset owners and what we think investors should measure, we send an open invitation
investment managers and, if policymakers and regulators intend to the industry to gather, clean, share and most of all standardise
to hold investors to account, it will be necessary for the data impact data.
infrastructure supporting impact analysis to be considerably
enhanced. This is surely achievable: from corporate credit ratings to
quarterly reporting of fund performance, there are many examples of
complex analyses being distilled into simple information for end users.
44 Investment Impact Framework

Given their reliance on data from professional information providers, What does all this add up to? Not quite a revolution in consumer
large investors have a golden opportunity to shape future data finance, but an obvious, and imminent direction for the investment
availability by communicating their requirements clearly to those industry. To establish impact as a key component of fund information
providers and, in parallel, encouraging companies to disclose. In we suggest the following next steps:
order to respond, providers either require companies to enhance
disclosure, or find other ways to extract relevant information (eg • Asset owners, investment managers and advisers to adopt
from Earth observation, ‘big data’ and public datasets). Market-wide consistent approaches to the measurement and communication
collaboration involving governments, companies, financial institutions of the impact performance of funds.
and regulators will be needed to deliver the required quality of • Information providers to use consistent and theoretically sound
information to investors. metrics in the design of impact-related products and services.
• Governments to require improved disclosure of environmental
Fortunately this effort has started. From the European Commission’s and social impacts by companies
Technical Expert Group on Sustainable Finance which is developing
a ‘green taxonomy’ of definitions, to the Financial Stability Board’s Finally there is a big difference between reporting the impact of funds
Task Force on Climate-related Financial Disclosures (TCFD), and redesigning them to optimise impact. Only the former objective
investment practitioners, regulators and policymakers are working is considered in this report. The latter will be the subject of intense
together to improve reporting processes. Make no mistake, however, innovation in coming years as investors recognise their potentially
the market demand for funds telling a credible story about social and game-changing role in shifting capital to a sustainable economy.
environmental impact is increasing, and will favour early adopters.
 Investment Impact Framework 45

Annex A:
Basic needs GICS codes

The following industries were included in the calculation of the basic needs base metric.

Basic need Industry GICS code Basic need Industry GICS code

Apparel, Accessories & Luxury

CLOTHING 25203010 FOOD Agricultural Products 30202010
Goods

CLOTHING Apparel Retail 25504010 FOOD Packaged Foods & Meats 30202030

CLOTHING Footwear 25203020 HEALTHCARE Health Care Equipment 35101010

CLOTHING Textiles 25203030 HEALTHCARE Health Care Supplies 35101020

COMMUNICATION Communications Equipment 45201020 HEALTHCARE Health Care Distributors 35102010

Technology Hardware, Storage &

COMMUNICATION 45202030 HEALTHCARE Health Care Services 35102015
Peripherals
Integrated Telecommunication
COMMUNICATION 50101020 HEALTHCARE Health Care Facilities 35102020
Services
Wireless Telecommunication
COMMUNICATION 50102010 HEALTHCARE Managed Health Care 35102030
Services

EDUCATION Education Services 25302010 HEALTHCARE Health Care Technology 35103010

ENERGY Electric Utilities 55101010 HEALTHCARE Biotechnology 35201010

ENERGY Gas Utilities 55102010 HEALTHCARE Pharmaceuticals 35202010

ENERGY Multi-Utilities 55103010 HOUSING Homebuilding 25201030

Independent Power Producers &

ENERGY 55105010 HOUSING Household Appliances 25201040
Energy Traders

ENERGY Renewable Electricity 55105020 HOUSING Housewares & Specialties 25201050

FINANCE Consumer Finance 40202010 HOUSING Home Improvement Retail 25504030

FINANCE Life & Health Insurance 40301020 HOUSING Homefurnishing Retail 25504060

FINANCE Thrifts & Mortgage Finance 40102010 HOUSING Health Care REITs 60101050

FINANCE Multi-line Insurance 40301030 HOUSING Residential REITs 60101060

FINANCE Property & Casualty Insurance 40301040 SANITATION Household Products 30301010

FOOD Food Distributors 30101020 TRANSPORT Railroads 20304010

FOOD Food Retail 30101030 TRANSPORT Highways & Railtracks 20305020

FOOD Hypermarkets & Super Centres 30101040 WATER Water Utilities 55104010

FOOD Soft Drinks 30201030

46 Investment Impact Framework

Annex B: Data tables

supporting test results
These tables contain the quantitative data behind the categorisation of relative performance of the example fund across all base metrics.
The upper and lower bounds in the tables indicate the edges of the performance quintiles in the MSCI Europe index.

Test results: basic needs

Table 16: Results relative to MSCI Europe
Impact of MSCI Europe per US$ 1m invested (US$ revenue) Impact of fund per US$ 1m Category
Lower bound Upper bound invested (US$ revenue)
87,254.45 215,701.49 Very negative
215,702.49 368,282.72 Negative
368,283.72 573,289.88 Neutral
573,290.88 1,547,116.60 Positive
1,547,117.60 24,199,318.18 2,462,040.17 Very positive

Impact of fund in comparison to MSCI Europe per US$ 1m invested

Impact of fund per US$ 1m invested (US$ revenue) 2,462,040.17
Impact of MSCI Europe per US$ 1m invested (US$ revenue) 897,607.32
Difference 174% (better)

Test results: wellbeing

Table 17: Results relative to MSCI Europe
Impact of MSCI Europe per US$ 1m invested (US$ tax) Impact of fund per US$ 1m Category
Lower bound Upper bound invested (US$ tax)
-28,821.47 6,108.22 Very negative
6,109.22 10,029.91 Negative
10,030.91 13,979.61 Neutral
13,980.61 25,214.12 Positive
25,215.12 321,812.77 106,067.93 Very positive

Impact of fund in comparison to MSCI Europe per US$ 1m invested

Impact of fund per US$ 1m invested (US$ tax) 106,067.93
Impact of MSCI Europe per US$ 1m invested (US$ tax) 23,319.29
Difference 355% (better)

Test results: decent work

Table 18: Results relative to MSCI Europe
Impact of MSCI Europe per US$ 1m invested (FTEs) Impact of fund per US$ 1m Category
Lower bound Upper bound invested (FTEs)
0.00 0.50 Very negative
0.50 0.92 Negative
0.92 1.68 Neutral
1.69 3.07 1.93 Positive
3.07 86.14 Very positive

Impact of fund in comparison to MSCI Europe per US$ 1m invested

Impact of fund per US$ 1m invested (FTEs) 1.93
Impact of MSCI Europe per US$ 1m invested (FTEs) 1.81
Difference 6% (better)
 Investment Impact Framework 47

Test results: resource security

Table 19: Results relative to MSCI Europe
Impact of MSCI Europe per US$ 1m invested (tonnes waste) Impact of fund per US$ 1m Category
Lower bound Upper bound invested (tonnes waste)
0.00 0.09 Very positive
0.09 0.33 Positive
0.33 1.43 Neutral
1.44 8.89 4.56 Negative
8.89 25,801.62 Very negative

Impact of fund in comparison to MSCI Europe per US$ 1m invested

Impact of fund per US$ 1m invested (tonnes waste) 4.56
Impact of MSCI Europe per US$ 1m invested (tonnes waste) 407.68
Difference -99% (better)

Test results: healthy ecosystems

Table 20: Results relative to MSCI Europe
Impact of MSCI Europe per US$ 1m invested (cubic metres water) Impact of fund per US$ 1m Category
Lower bound Upper bound invested (cubic metres water)
1.51 51.54 Very positive
51.64 131.96 Positive
132.06 546.14 527.14 Neutral
546.24 53,708.94 Negative
53,709.04 503,175.35 Very negative

Impact of fund in comparison to MSCI Europe per US$ 1m invested

Impact of fund per US$ 1m invested (cubic metres water) 527.14
Impact of MSCI Europe per US$ 1m invested (cubic metres water) 4,914.72
Difference -89% (better)

Test results: climate stability

Table 21: Results relative to MSCI Europe
Impact of MSCI Europe per US$ 1m invested (tonnes carbon dioxide equivalent ) Impact of fund per US$ 1m invested Category
Lower bound Upper bound (tonnes carbon dioxide equivalent )
0.00 2.60 Very positive
2.70 8.15 Positive
8.25 23.35 Neutral
23.45 192.83 38.83 Negative
192.93 4,794.90 Very negative

Impact of fund in comparison to MSCI Europe per US$ 1m invested

Impact of fund per US$ 1m invested (tonnes carbon dioxide equivalent ) 38.83
Impact of MSCI Europe per US$ 1m invested (tonnes carbon dioxide equivalent ) 139.24
Difference -72% (better)
48 Investment Impact Framework

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