Australian super fund HESTA is recruiting its first impact measurement specialist, in the latest sign of a shift in the responsible investment industry’s focus from risk mitigation to sustainable outcomes.
Mary Delahunty, Head of Impact at the A$64bn (€40bn) health and social care workers fund, told RI that creation of the role – believed to be a first among Australian super funds – was prompted in part by the “growing understanding in our member base that authentic leaders provide evidence of their impact”.
“The finance sector has been good at measuring exposure to sustainable assets,” she said, “but members should be able to see the outcomes of this exposure at the portfolio level.”
Delahunty told RI that HESTA’s work on impact measurement, which has been going on for a few years, has now reached a scale that requires a dedicated analyst – particularly as it seeks to integrate metrics into its investment decision-making processes. The fund bases its impact assessment on the UN Sustainable Development Goals, particularly gender equality, climate mitigation, clean water, good jobs, sustainable cities, and good health and wellbeing.
The responsible investment world is increasingly seeking to gauge the real-world impacts of investments, shifting away from a narrower focus on ESG-related risk at the portfolio-level, which has been primarily driven by enhanced corporate disclosure.
"Over the coming years, it's really about determining the outcomes of your investments," said Victoria Barron, Head Of Sustainable Investment at BT Pension Scheme Management, one of the UK's biggest funds. "It's something we all like to talk about, but the reality of actually pinning these things down is really difficult. Investors really need to think about that, beyond ESG integration, so we can work out the impact our investment is having. That's going to be a big project for the responsible investment community in the next few years, because a lot of work still needs to be done."
There is a growing push to develop a parallel framework to the Taskforce on Climate-related Financial Disclosures – the influential reporting guidance that seeks to promote transparency around micro- and macro-level climate risks in the financial markets – which would focus on impact.
Earlier this year, the Principles for Responsible Investment, announced that impact would be central to its next three-year strategy.
“Increasingly, our signatories are recognising that the real-world sustainability outcomes they contribute to shaping through their investment activities will feed back into the financial risks they face,” the UN-backed body said at the time. “For this reason, building a bridge between financial risk, opportunities and real-world outcomes is a key element of this strategy.”
The emphasis on capturing the real-world impacts of business activities and investments is also at the centre over the current debate about corporate sustainability reporting rules. The EU is pushing forward the concept of ‘double materiality’ in such rules, which requires businesses to account for how their activities impact the environment and society, as well as how corporate bottom lines could be hurt by green and social issues.
Investors are watching closely to see how far the US Securities and Exchange Commission is willing to depart from a traditional, narrower interpretation of what constitutes material financial risk as it develops its sustainability disclosure rules for the US.
Ladislas Smia, Head of Sustainability Research at French sustainable finance asset manager Mirova, told RI that the development of taxonomies would also shift the focus for investors – especially in the EU.
"The EU taxonomy will push the investment community to move from simply reducing ESG risks in their portfolios, to identifying solutions and investments that actually contribute to the real-world climate transition. Those investments have to be the focus now, if we’re going to meet the Paris Agreement."
The EU taxonomy is a major project for European regulators, who are seeking to define credible business activities that will help shift the bloc’s economy in line with its goal of reaching Net Zero by 2050.
“There is increased recognition of the role of responsible investors in shaping sustainability outcomes, and a rising awareness of the new types of ‘decision-useful’ information that will be needed to support them,” said Shelagh Whitley, Chief Sustainability Officer at the PRI. “There are also important regulatory developments taking place currently in ESG reporting, and we believe that some level of reporting on sustainability outcomes will be needed in future – in the context of global agreements on climate, human rights and the SDGs.”