Report proposes framework to ensure closer link between investment intention and impact.
New research warns institutional investors of a potential disconnect between ambition and reality if they focus on measuring investment impact without explicitly linking it to value creation for stakeholders.
A report from the Thinking Ahead Institute, titled “Sustainability: Understanding Impact and Value Creation”, also flags the gap between the positive intentions of investment institutions toward building a more sustainable economy, and their ability to deliver it.
The Institute’s sustainability impact working group, comprising of asset managers and asset owners, has developed a four-step self-assessment framework to identify areas where asset managers may need to reinforce the relationship between intent and outcome.
The first step involves identifying key stakeholders and understanding their expectations and needs to determine what is valued by investors. This is followed by aligning organisational purpose with the desired outcomes by identifying which stakeholders the organisation prioritises.
The third step is to identify gaps between current practice and desired norms that align with the organisation’s beliefs and value systems, evaluating them systematically through tools such as questionnaires and scoring systems. The fourth step involves the development of an internal action plan, based on discussion of results and gaps. Finally, the working group recommends the output of this impact and value creation assessment be communicated externally.
Marisa Hall, Co-head of the Thinking Ahead Institute, said, “Historically, articulation by the investment industry of value creation linked to purpose and impact has been poor. But this is changing as stakeholders increasingly expect authentic, intentional and transparent communication of the value they can expect now and prospectively. While challenging, we believe this can be achieved by using the integrated reporting framework or, in practice, producing an integrated report.
“Investment has long been seen as a two-dimensional problem of optimising risk and return. In reality, it’s always been three-dimensional: investment also impacts the world around us. We believe managing impact improves risk and return outcomes, therefore using this framework will help investment organisations address all three together and effectively communicate their overall value added.”
The sustainability impact working group comprised representatives from: AXA Investment Managers, Coronation Fund Managers, Dimensional Fund Advisors, Federated Hermes, First State Super, QIC and Willis Towers Watson. All parties contributed case studies to the report.
The Thinking Ahead Institute was established by Willis Towers Watson in January 2015 and is a global not-for-profit investment research and innovation member group made up of engaged institutional asset owners and service providers.