FOR PROFESSIONAL OR INSTITUTIONAL INVESTORS ONLY
Impact investing seeks to tackle the world’s most pressing social and environmental problems — for example, by providing access to education or responsibly managing the world’s resources. But how can investors be sure their capital is really making a difference?
We believe measurement must be at the heart of the impact investment process. As well as addressing investors’ understandable concerns about greenwashing, it also encourages companies to improve over time. By tracking the impact of each portfolio holding, we aim to hold the companies we invest in to high standards of accountability.
We assess each company’s impact through key performance indicators (KPIs). These will vary by company, industry and theme and might include the number of developing world students that a company has given access to higher education, or the tons of CO2 emissions avoided thanks to a renewable energy solution. We believe good KPIs are easy to understand and verify and encompass a company’s overall impact. Finding data for KPIs requires in-depth research, as not all companies routinely measure their social or environmental improvement.
To systematically measure impact, we use a logic chain from the impact investing industry. This five-step chain runs from inputs (e.g., capital applied towards an impact goal) through activity and output (e.g., the number of products developed and sold) to outcome and impact (achievements in terms of products used and contribution towards an impact goal).
We aim to capture KPIs towards the outcome/impact end of the chain, as they provide the best evidence that a company is making a real difference. Where it is hard to obtain definitive data, we give companies credit for their impact aspirations.
Direct engagement with companies can be invaluable. For example, we recently met with the CEO of one of our clean water and sanitation holdings to discuss the measurement of the company’s impact achievements. That conversation greatly helped us when assessing the company’s contributions to water and energy conservation.Measurement is key
Measurement is an essential pillar of impact investing. It not only shows investors their capital is being put to good use; crucially, it also helps to generate more positive outcomes for the world.
Louise Kooy-Henckel is Investment Director at Wellington Management.
This article was sponsored by Wellington and RI editorial staff were not involved in the creation of this content
For more information on Wellington Management’s approach to impact investing, please contact:
Camiel de Vries
44-20-7126-6417 | CdeVries@wellington.com
44-20-7126-6086 | TJSutton@wellington.com
Wellington Management is a globally integrated asset management firm with over US$1 trillion in assets under management worldwide as at 30 June 2018. We have been providing investment solutions to clients for over 80 years.
There is no guarantee an investment strategy will be successful. Investing involves risk, and an investment could lose money. Before investing, all investors should consider the risks that may affect their capital. The approach’s principal risks include:
CONCENTRATION: Concentration of investments within securities, sectors or industries, or geographical regions may impact performance.
CURRENCY: The value of an investment may be affected by changes in currency exchange rates.
EMERGING MARKETS: Emerging markets may be subject to custodial and political risks, and volatility. Investment in foreign currency entails exchange risks.
EQUITIES: Investments may be volatile and may fluctuate according to market conditions, the performance of individual companies and that of the broader equity market.
HEDGING: Any hedging strategy using derivatives may not achieve a perfect hedge.
SMALL AND MID–CAP COMPANY: Small and mid-cap companies’ valuations may be more volatile than those of large cap companies. They may also be less liquid.
Please refer to the investment services description or prospectus for a full list of risk factors.
This material and its contents are current at the time of writing and may not be reproduced or distributed in whole or in part, for any purpose, without the express written consent of Wellington Management. This material is not intended to constitute investment advice or an offer to sell, or the solicitation of an offer to purchase, shares or other securities. Investing involves risk and an investment may lose value. Investors should always obtain and read an up-to-date investment services description or prospectus before deciding whether to appoint an investment manager or to invest in a fund. Any views expressed are those of the author(s), are based on available information and are subject to change without notice. Individual portfolio management teams may hold different views and may make different investment decisions for different clients. This material is issued by Wellington Management International Limited, Niederlassung Deutschland, the German branch of WMIL, which is authorised and regulated by the UK’s Financial Conduct Authority and, in respect of certain of its activities, by the Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin). Shares of the Fund may not be distributed or marketed in any way to German retail or semi-professional investors if the Fund is not admitted for distribution to these investor categories by BaFin.