Accentuate the Positive

Daniela Barone Soares, CEO of Snowball Impact Management, says positive social and environmental outcomes must stand alongside financial performance.

Through impact investing, asset owners “hold real power to spawn positive change… and can mitigate the very issues that threaten the long-term value of their assets”.

This is the view of the Global Impact Investing Network’s (GIIN) CEO and Co-Founder, Amit Bouri, who says that “when institutional investors incorporate impact efficiently and effectively” they can tackle the challenges the climate emergency and social inequality pose to their beneficiaries’ well-being.

Yet, while Bouri says investment products that incorporate some consideration of impact “are experiencing substantial inflows of capital”, the World Bank’s International Finance Corporation (IFC) recently reported that just 2% of global assets under management were invested for impact in 2020.

Impact challenges

Asset owners looking to increase their impact face a number of barriers. Nearly 40% of asset owners responding to a GIIN survey admitted to a “lack of knowledge on existing asset managers focused on impact” and highlighted this as a challenge in setting or expanding their impact priorities.

To provide investors with a ‘one-stop shop’ for impact investing, Daniela Barone Soares runs Snowball Impact Management; “a fund management firm aiming to change behaviours in capital markets so that all capital is invested for social and environmental – as well as financial – returns”.

Barone Soares says the fund management sector is too focused on ESG strategies as a ‘tool to do less harm’, rather than favouring impact investment strategies as a means of ensuring positive change.

“From an investor perspective, ESG is the effect the world has on the company and impact is how the company affects the world,” she explains. “ESG is concerned about a licence to operate, the impact of E, S and G in future cash flows and risk management. Importantly, it does not consider the product or service a company does.

“Impact investment is about finding mission-aligned, focused on companies whose products and services are solving social and environmental problems. It is addressing a world system which is exploitative of nature and communities and that consumes more than it can replenish – a system which will collapse if nothing is done to change it.”

 Manager selection

As a fund of funds provider, Snowball runs a global balanced impact portfolio investing across private and public debt and equity, as well as real assets including social housing, sustainable forestry and renewables. The portfolio has 40 investments with 30 managers.

To select underlying managers, Snowball uses an impact measurement framework based on the potential and actual impact of the assets they hold in their portfolios, taking account of how the manager aims to improve its own impact as well as that of its underlying investee companies.

This creates a ‘bullseye score’ which places managers on a target, ranging from five at the centre which represents those that ‘have hit the target and demonstrate a track record of high intensity, targeted impact leading to continuous improvement’, out to zero on the outer ring where ‘managers have no consideration of impact’.

Barone Soares concedes that relatively few managers hit the bullseye – just 3% of the Snowball portfolio scores five – but says this is indicative of the standards her firm expects.

“There is a huge amount of due diligence involved in our process. We have extremely high standards and only a handful of managers meet our expectations,” she says.

The majority of managers in Snowball’s portfolio are boutique managers with B listed certification, which means they have high ESG standards and transparency across their business and supply chains. As such, Barone Soares there are almost no household names on Snowball’s approved fund management list.

Sharing information

Snowball uses what Barone Soares calls “a unique framework” to assess and monitor the impact of its managers.

The framework is informed by “best practice” guidance from the Impact Management Project (IMP) and the Operating Principles for Impact Management developed by IFC.

The IMP, formed in 2016, was a five-year project aiming to achieve consensus on how to measure, assess and report impacts on people and the environment.

The project built four strategies to shape investors’ approach to delivering impact: signal that impact matters; engage actively; grow new or undersupplied markets; and provide flexible capital.

Barone Soares says: “We have built on the IMP criteria and developed additional questions for managers. They are not just asked about the impact of the enterprises they invest in; they are challenged as to how they make a difference to that impact. We focus on the mission, behaviour and values of the manager and their impact risk management.”

She adds: “We could have made our approach proprietary, but we want to share what we are doing. The whole point of impact investing is to make a difference and that doesn’t happen when information isn’t shared with investors and the wider financial community.”

Snowball’s commitment to transparency extends beyond its own activities. Barone Soares is concerned about the proliferation of ESG ratings and scores, which she argues are in danger of undermining responsible investment, due to the absence of rigorous regulation. This results in opacity in methodology and inconsistency in outcome.

“Investors may be unwittingly exposed to companies only focused on getting a good rating but not on the underlying issues which could improve the business.”

She points to a recent list of the top five rated ESG companies published by Hargreaves Lansdown based on Refinitiv’s rating of the FTSE 100.

These include British American Tobacco ranked third and mining giant Glencore in fourth position.

The Hargreaves report says: “The results might surprise you. It just goes to show that those wanting to invest with ESG in mind, don’t necessarily have to exclude any one type of investment.”

Barone Soares says the results show how flawed ESG ratings can be.

“To see a tobacco company and a mining company in the top five ESG rated companies might suggest that there needs to be more scrutiny of how these scores are calculated.”

Evolving frameworks

In many cases, ESG ratings and scores are a reflection of how firms manage their ESG risks, rather than how they impact environment or society. The frameworks to measure both risks and impact are evolving, but so too must concepts of fiduciary duty, often enshrined in law, if asset owners are to make progress towards meaningful impact investment.

“Fiduciary duty means getting the best for members and that does not necessarily mean making the most money. When was the last time anyone asked pension fund members and individuals what matters the most to them?”

She continues: “People do care where their money is invested, they do want to make a difference. The bottom line is not always the most important factor. A fiduciary duty also involves protecting members’ long-term interests and ability to not just survive but thrive on a healthy planet.”

While impact investing considers returns, if the emphasis is solely on financial performance, says Barone Soares, the other tenets – risk and impact – are compromised. Ultimately for impact investing to gather more assets there will need to be, as Barone Soares says, “a massive shift in mindset”, with investors appreciating positive social and environmental outcomes in equal measure to financial performance.

She says: “We exist to change investment behaviour, to prove it is possible to create market rate financial returns and a positive impact for society and the environment around us. Everyone should be able to invest in this way, and we need progress towards this goal to be much faster.”


The practical information hub for asset owners looking to invest successfully and sustainably for the long term. As best practice evolves, we will share the news, insights and data to guide asset owners on their individual journey to ESG integration.

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