Subpar measurement and recording techniques are having a negative effect on impact investing, warns Brunno Maradei, global head of responsible investing at Aegon Asset Management.
According to Maradei, impact investing risks being marred by the attempts of some asset managers to “gain a competitive advantage over rivals.”
Maradei explains: “My cynical self would argue that the new impact trend is just about obfuscation and an attempt to differentiate in an increasingly crowded investing space.
“While impact investing is respectable if done properly, this field is still struggling with subpar measurement and reporting techniques, leaving many investors wondering if they are truly achieving positive social and environmental impact through their investments.”
Maradei says that as investors grow savvier about sustainable and green investing and regulators work towards standards and data improvements, asset managers are increasingly looking for frontier terrain where it is possible to “differentiate by claiming positive impact without worrying too much about evidence to back up their claims”.
However, Maradei says that despite these concerns there is still value to be found in impacting investing. The key for investors is to understand the different types and have “reasonable expectations”.
According to Maradei, impact investing sits on a scale of “potentiality and certainty.” At one end of the spectrum are direct private equity and debt investments which can provide “close to full confidence” on the use of proceeds, with impact metrics and reporting agreed upfront as part of the investment agreement.
Further down the scale, there are green and social bonds and at the other end of the spectrum are investments made through public markets using negative or positive screening where impact is “more marginal, less certain, measurable and attributable.” However, Maradei says these can still make a “positive contribution over time as they reach scale, and in combination with targeted engagement”.
