Executive summary

This guide is for investors who want to generate positive social and environmental impact through their investments. It explains what investor impact is and how it differs from company impact. Investor impact is the change that an investor causes in a company’s impact, while company impact is the change in the world caused by a company’s activities.

The guide outlines three recommendations for investors to maximise their impact:

• Enable impactful companies to grow: This involves investing in young, impactful companies in inefficient financial markets, particularly those needing capital and unable to secure funding elsewhere. Investors should consider companies needing flexible financing and select fund managers who can boost company growth with non-financial support.
• Encourage improvement in companies: This includes engaging with company management, voting shares, and screening for transparent environmental, social, and governance (ESG) criteria. The focus should be on realistic improvements supported by a large coalition of investors.
• Influence public discourse: Investors should be vocal about their investment decisions and divestments from harmful industries. Joining coalitions with like-minded investors can amplify this impact.

What is investor impact?

The guide emphasises that the impact of an investment is not simply the impact of the companies in an investor’s portfolio. It introduces three key insights:

• Impact is a change in the real world caused by an investor’s activities.
• Investor impact is the change in a company’s impact caused by the investor’s actions.
• Investors can change company impact by enabling the growth of impactful companies or encouraging improvements in less sustainable companies.

The mechanisms of investor impact

The guide details different mechanisms of investor impact, assessing their effectiveness based on evidence and identifying their requirements and limitations. It provides examples like Bill Gates’ investment in Impossible Foods (growing new markets), Root Capital’s financing of the Musasa Coffee Cooperative (providing flexible capital), and Stanford’s coal divestment (sending non-market signals). Other mechanisms include providing non-financial support, shareholder engagement, and market signals.

Applying the mechanisms to sustainable investing products

The guide maps the mechanisms of investor impact to common sustainable investing approaches, such as industry exclusion, ESG integration, and impact investing. It highlights criteria for assessing the impact potential of each approach. For instance, industry exclusion relies on non-market signals and requires publicizing the decision to avoid investing in a specific industry. Shareholder engagement, on the other hand, requires focusing on realistic and meaningful ESG improvements.

How to put this guide into action

The guide proposes a three-step process for investors to optimise their impact:

• Understand their baseline investor impact by mapping portfolio holdings to the framework.
• Integrate investor impact into their broader investment strategy.
• Make informed investment decisions based on the strategy and the framework.

The guide concludes by acknowledging the limitations of the framework and suggesting areas for further research. It emphasises that the framework is a tool for qualitative assessment and does not provide a quantitative measure of investor impact.