Investors Must Focus on Impact Measurement Tools – ShareAction  

NGO ShareAction launches drive to coalesce investment sector around a new definition of ‘responsible investment’, with the first guidance paper launched for investors this week.  

Investors must explore and invest in the development of impact measurement tools, UK-based charity ShareAction has said, challenging the finance sector to adopt an ambitious new definition of ‘responsible investment’ that includes the assessment of real-world social and environmental impacts alongside financial risk and return.  

ShareAction launched a new definition of ‘responsible investment’ in a bid to raise standards across the financial sector and help prevent greenwashing and misleading claims. ShareAction’s new definition is: “Responsible Investment is a transparent approach, embedded throughout the investment process, that takes the positive and negative impacts on people and planet as seriously as financial risk and return.” 

There are four principles underpinning the definition, including that the assessment of social and environmental impacts should be informed by credible science-based evidence and frameworks such as the UN Sustainable Development Goals. 

Niall Considine, Senior Manager of Asset Manager Standards at ShareAction, told ESG Investor that there were already many widely accepted international conventions on environmental and social issues that can be used to design sustainability thresholds relevant to investment decisions, ranging from temperature goals in the Paris Agreement and the COP15 agreement to guide global action on nature, to specific labour and human rights enshrined in frameworks like the UN Guiding Principles for Business and Human Rights.   

“While there are some data and methodology challenges around these frameworks, they nonetheless provide a powerful resource for investors,” he said.  

“Although investors routinely acknowledge and claim adherence to these frameworks, their approaches to respecting them vary considerably and the integrity of such claims is challenged when the principles of these frameworks are superseded by prioritising financial return.” He added that tools to measure impacts were rapidly evolving – such as the explosion of ‘big data’ – meaning that assessments could increasingly incorporate quantitative as well as existing qualitative or anecdotal metrics.  

“Measuring emissions has come a long way in a short time,” he said, adding that while tools for quantitative measurement will naturally have some “nascent challenges”, assessing impacts of investments on people and planet will require investors to explore and invest in the development of these tools, so they become robust and common over time.

Standards and expectations 

To support the investment community, ShareAction will launch a series of guidance papers that set out Responsible Investment Standards and Expectations across specific topics, said Considine. 

“Grounded in detailed research, we will recommend actions that asset managers can – and should – take in today’s investment environment to work towards being a truly responsible investor,” he said.

The first guidance paper has been published this week, on setting interim net zero targets.

Some asset managers have set net zero targets, including as part of the Net Zero Asset Managers’ initiative (NZAMi). However, ShareAction has identified problems in the way these are currently structured that jeopardise chances of halving emissions by 2030 – a goal that is the bedrock of the NZAMi commitment and a critical milestone on the path to 1.5°C.    

ShareAction’s guidance on net zero sets out five expectations for asset managers including advocating for a common approach to emissions reporting and interim target setting, enhancing transparency about assets not currently included within targets and progress for bringing them into scope and using a reduction in absolute, real-world emissions as the primary metric to report and set targets instead of potentially weaker alternatives such as intensity-based emissions.  

Considine said: “We believe investors should evolve tools to ensure this consideration of impact against risk is objective and consistently applied. The mechanisms by which carbon impacts can be considered against return are well evolved – for instance through the use of assumed carbon pricing.

“For other impacts which are more reliant on qualitative assessment, these mechanisms may be more challenging to construct and implement. But finance has consistently shown itself able to innovate methods of distilling and pricing qualitative or hard to measure risks. This history of innovation should be turned to consistently consider and address the greatest – often systemic -challenges to people and planet.”

Transparency for clients 

One of the principles underpinning the shared definition of responsible investment is transparency, so that clients are able to see how their money is being used and the impact their investments are having on the world around them.  

“It is clear from a poll of public attitudes that [investors] in the UK care about the impact their money is having on the planet and their communities. We believe that disclosures made in plain English should cover the actual and expected impacts of portfolio companies, how those impacts are factored into investment decisions, and stewardship of investee companies, including an approach to public policy advocacy,” said Considine.  

On how ShareAction will ensure its shared definition of responsible investment is widely adopted and implemented, Considine said it would be launching a series of guidance manuals that set out standards and expectations for responsible investment practices by asset managers across specific topics, and later this month hosting a webinar to discuss this.  

Alongside the definition, ShareAction is pushing for reforms to financial regulation in the UK and EU to unlock the potential of the investment sector to address social and environmental challenges, he added.  

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