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Last week we were joined by three industry professionals with specialized focus on quantifying impact in finance: Desiree Lucchese, Head of Ethics and Impact at U Ethical; Kate Dowling, Chair on the Finance and Investment Taskforce at NSW Circular; and Deen Rad, Social Impact Investment Associate at NSW Treasury. These three speakers explored with us how they quantify impact in their profession, and the challenges they face.
Evaluating and considering investments in the impact space
The speakers began by echoing a sentiment that appeared in a previous panel discussion: “All investments are investments with impact”. When an investor selects a particular industry or company, they are driving at a certain outcome: the choice in capital placement is the choice of impact. Therefore, regarding evaluation of an investment, the correct context must be maintained. This context is heavily influenced by the lens an investor chooses, but diversity still exists even within a specific lens. For instance, measuring greenhouse emissions is a completely different area of theory to recovering biosolids, even though both practices fall under the purview of an environmental lens. Once a context is defined, an investor can then begin to build thematic funds that are focused in impact and purpose.
Avoiding “impact-washing”
On this question, one speaker began by cautioning against the use of similar but non-interchangeable terms. Often buzzwords such as “green”, “sustainability-focused” etc. are bandied around by large firms, but whether or not these terms specifically can apply to the mission of said firm is only clear by their mission statement and their actions. Controversies can often be an illuminating source of information regarding intentionality. To this end, it is essential that impact-oriented investors conduct their own due diligence such as keeping up-to-date with the disclosures of firms - is the company doing what they say they are doing? Furthermore, investors should look beyond charitable commitments, and instead focus on measurable progress the investment in question can and has made in driving to achieve their impact lens.
Another speaker noted that many nominally “impact-focused” funds are still steeped in traditional finance orthodoxy. For example, many funds purporting to be impact or sustainability oriented still hold investments in large stable companies such as Coca-Cola. Impact must be measured on an active investment basis rather than on an on-screen basis.
Naturally, investors must take into account the prevalence of “grey-area” or sometimes blatantly false reporting. For instance, recently a large banking institution was found to have shady reporting regarding their carbon emission savings scheme. Employees of this institution who took the metro to work were reported to not drive, which significantly lowered the supposed carbon footprint of this company, but common sense tells us this may not necessarily be the case. Going back to a previous point, this demonstrates the necessity in keeping up-to-date with disclosures of public companies and institutions.
Reconciling differences across metrics, and the bias of measurability
All speakers were in agreement regarding the importance of a standardized framework in impact investing. It was noted that there is a distinct possibility that certain organizations may be missing out of funding due to the increased difficulty in measuring their work when compared to other organizations with clearer impact contexts. CO2 emissions, for example, have gotten a lot of publicity, and are the first thing most people think of regarding “impact”, largely due to the measurability of carbon emissions. It is much harder to measure things such as loss in biodiversity, lifespan of current products vs potential lifespan, and so on. Placing quantifiable values on impact helps enormously in securing public interest and therefore funding: the easier it is to measure, the more visibility and traction it will get. To this end, financial institutions and the government are increasingly placing importance on standardized frameworks.
The conclusion of Profit through Purpose
With that, the first series of panel discussions by SUIIS is at an end! I would like to extend to all our previous panel members the deepest gratitude from everyone at SUIIS. We had such a great time discussing topics in this very exciting space with you, and we hope our paths cross again in the future! To our society members and readers, your attendance and viewership is highly appreciated. Stay tuned on our socials for updates on the society and upcoming events. Hope to see you soon!
Last week we were joined by three industry professionals with specialized focus on quantifying impact in finance: Desiree Lucchese, Head of Ethics and Impact at U Ethical; Kate Dowling, Chair on the Finance and Investment Taskforce at NSW Circular; and Deen Rad, Social Impact Investment Associate at NSW Treasury. These three speakers explored with us how they quantify impact in their profession, and the challenges they face.
Evaluating and considering investments in the impact space
The speakers began by echoing a sentiment that appeared in a previous panel discussion: “All investments are investments with impact”. When an investor selects a particular industry or company, they are driving at a certain outcome: the choice in capital placement is the choice of impact. Therefore, regarding evaluation of an investment, the correct context must be maintained. This context is heavily influenced by the lens an investor chooses, but diversity still exists even within a specific lens. For instance, measuring greenhouse emissions is a completely different area of theory to recovering biosolids, even though both practices fall under the purview of an environmental lens. Once a context is defined, an investor can then begin to build thematic funds that are focused in impact and purpose.
Avoiding “impact-washing”
On this question, one speaker began by cautioning against the use of similar but non-interchangeable terms. Often buzzwords such as “green”, “sustainability-focused” etc. are bandied around by large firms, but whether or not these terms specifically can apply to the mission of said firm is only clear by their mission statement and their actions. Controversies can often be an illuminating source of information regarding intentionality. To this end, it is essential that impact-oriented investors conduct their own due diligence such as keeping up-to-date with the disclosures of firms - is the company doing what they say they are doing? Furthermore, investors should look beyond charitable commitments, and instead focus on measurable progress the investment in question can and has made in driving to achieve their impact lens.
Another speaker noted that many nominally “impact-focused” funds are still steeped in traditional finance orthodoxy. For example, many funds purporting to be impact or sustainability oriented still hold investments in large stable companies such as Coca-Cola. Impact must be measured on an active investment basis rather than on an on-screen basis.
Naturally, investors must take into account the prevalence of “grey-area” or sometimes blatantly false reporting. For instance, recently a large banking institution was found to have shady reporting regarding their carbon emission savings scheme. Employees of this institution who took the metro to work were reported to not drive, which significantly lowered the supposed carbon footprint of this company, but common sense tells us this may not necessarily be the case. Going back to a previous point, this demonstrates the necessity in keeping up-to-date with disclosures of public companies and institutions.
Reconciling differences across metrics, and the bias of measurability
All speakers were in agreement regarding the importance of a standardized framework in impact investing. It was noted that there is a distinct possibility that certain organizations may be missing out of funding due to the increased difficulty in measuring their work when compared to other organizations with clearer impact contexts. CO2 emissions, for example, have gotten a lot of publicity, and are the first thing most people think of regarding “impact”, largely due to the measurability of carbon emissions. It is much harder to measure things such as loss in biodiversity, lifespan of current products vs potential lifespan, and so on. Placing quantifiable values on impact helps enormously in securing public interest and therefore funding: the easier it is to measure, the more visibility and traction it will get. To this end, financial institutions and the government are increasingly placing importance on standardized frameworks.
The conclusion of Profit through Purpose
With that, the first series of panel discussions by SUIIS is at an end! I would like to extend to all our previous panel members the deepest gratitude from everyone at SUIIS. We had such a great time discussing topics in this very exciting space with you, and we hope our paths cross again in the future! To our society members and readers, your attendance and viewership is highly appreciated. Stay tuned on our socials for updates on the society and upcoming events. Hope to see you soon!
