Snowball’s latest impact report emphasises narrative and includes third-party critique.
Asset owners’ increasing focus on impact is placing greater demands on their service providers to provide a full picture of their positive contributions to environmental and social themes. This is leading some to develop innovative approaches to their impact reports, including new ways to augment quantitative data with qualitative evidence.
“The idea that you could quantify and compare the impact of an investment portfolio solely through a handful of numbers against someone else’s portfolio is something we would caution against,” said Jake Levy, Investment Manager and Impact Lead at UK-based impact manager Snowball. The firm runs a multi-manager impact fund consisting of 41 social and environmental-focused investments, with the majority invested in through funds managed by 30 managers.
One reason for the need for narrative is the perils of comparing numbers generated in different ways.
“As well as being an oversimplification, it’s difficult to know the reliability of the data because of the opaqueness of the methodologies, often leading to situations where apples are being compared to oranges,” he told ESG Investor.
Snowball recently published its 2021 impact report, which places emphasis on qualitative evidence to outline the performance of both its investments and the managers it works with. It was assessed and marked by an independent third party, The Good Economy. Recommendations made by the impact advisory firm were included in the report, with Snowball publishing its responses and intended next steps alongside.
It is the third report in a series setting out Snowball’s approach to measuring and managing impact.
The first was published in 2018 and outlined how the firm assesses enterprise impact, including guidance on reporting impact goals. The second, published in 2020, explained how Snowball assesses manager impact in public and private markets.
Explaining the numbers
Asset owners are increasingly requiring more detailed information on the ESG risks and impacts of their investments, according to a recent study supported by more than 40 global asset managers, which flagged the growing importance of narrative.
Snowball’s impact report included qualitative overviews of some of the funds the firm is invested in and how these are expected to drive positive impacts across social and environmental themes.
These include Women in Safe Homes (WISH) fund, a joint venture between Patron Capital Advisers and Resonance Impact investment which invests in housing for women experiencing homelessness, domestic violence, and mental health issues, as well as women who have just left prison.
Following interviews with both managers, Snowball noted they have “a clear theory of change”, working closely with the housing partners leasing the properties, who must set strict criteria before a property can be progressed to the WISH Investment Committee.
Snowball has also drawn on quantitative data to assess the potential scale of positive impact the fund may have, noting that this is tied to fund size and the number of properties provided to tenants – £100 million and 650 properties, respectively.
“But we don’t want to just report our impact KPIs without the added context,” said Levy.
Snowball has identified challenges that may impact the fund’s future performance, such as changes to housing benefits and property market dynamics across different geographies.
“We looked at the managers of the funds we invest in and considered the overall impact they have had based on current and prior investments,” said Levy, adding that Snowball considers managers’ governance structures, net zero approaches, and in-house diversity, “because these are good indicators of their true commitment to positive impact”.
Based on Snowball’s qualitative assessments and tracking the portfolio-level performance of investments, managers are given a ‘bullseye score’, ranging from zero (no consideration of impact) to five (clear track record of targeting high intensity impact). Currently, just 3% of managers Snowball is working with have been scored a five.
Getting good grades
The third-party assessment conducted by The Good Economy uncovered areas of Snowball’s impact reporting that can be improved.
“Investors shouldn’t mark their own homework, so it was essential that we involved a third party,” Levy said.
“The process was a rigorous one, and The Good Economy went deep into understanding Snowball’s processes and frameworks, also speaking to some of our managers to hear their perspective on our engagement approaches. Snowball decided from the outset to publish the findings, because we believe that level of transparency and accountability is important.”
The Good Economy assessed managers’ impact-related performance across three core themes: intentionality to contribute to improved social and environmental outcomes, degree of impact integration across the investment process, and maintenance of impact integrity through transparency.
“Snowball has demonstrated its commitment to being a learning organisation and to contributing to improved levels of transparency across the industry,” The Good Economy said.
The firm identified four areas for improvement: tracking the success of engagement activities, evidencing progress in Snowball’s ambition to change behaviours in capital markets, introducing more regular external oversight of impact performance, and assessing managers on their negative impacts alongside their positive.
“As the [impact] market evolves, integrity is going to be such a key part of ensuring that both investors and the wider public by into ESG and impact,” said Snowball’s Levy.
“Transparency and accountability, alongside a strong narrative, is key to unlocking best practice.”