Truth in impact: A Tideline guide to using the impact investment label
This report provides insights on sustainable investing labelling. Investors can self-classify and maintain market integrity through clear, accurate labelling backed by independent verification. The report offers a proprietary Framework for Impact Labeling, case studies, and observations about sustainable investing.
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OVERVIEW
The report provides investors with a framework for accurate labelling of sustainable investment strategies. The report describes “impact investing” as defined by three key pillars: intentionality, contribution, and measurement. The framework for impact labelling can be used to qualify an investor’s sustainable investing approach by assessing the degree of intentionality, contribution and measurement within a strategy. The guidance presented in the case studies demonstrates how the labelling system can help investors understand and communicate strategies related to sustainable investment.
ESG integration, thematic investments, and impact investing are the most commonly accepted approaches and terms in sustainable investment. The report highlights that sustainable investing approaches vary and leaders and laggards in the ESG integration space may be distinguished based on their approach to active ownership. In public markets, this may be known as shareholder engagement, whereas in the private markets, this can mean engaging with portfolio companies to ensure they are following certain ESG best practices.
The report observes that investors usually label their funds as ESG integration strategies, given the flexible and broad nature of the strategy and low requirements for meeting the criteria. The report provides guidance on developing an impact strategy, by establishing clear and specific impact objectives. Implementing a robust methodology based on consistent attribution of impact management teams to enhance impact outcomes could support the manager in developing an impact strategy in the future. Moreover, verifying impact mandate and practice, proactively engaging with management teams to address impact underperformance can drive impact.
Investors should use the guidelines presented in the report to qualify and label their funds to provide transparency and maintain market integrity. The recommended steps for strategy development are intending to target specific social or environmental outcomes, explicitly targeting such outcomes that contribute to the social good while establishing a quantitative business case. Furthermore, in-depth support to management teams can enhance endeavours to deliver sustainable change. On the other hand, evaluating the approach’s degree of contribution and ensuring that the required measurement elements are incorporated is key to building a successful impact strategy.