1. Newsroom
  2. The evolution of Impact Investing in listed markets – and what happens next ?
Menu
UBP in the press 05.07.2021

The evolution of Impact Investing in listed markets – and what happens next ?

The evolution of Impact Investing in listed markets – and what happens next ?

A lot has changed in the last few years. Impact investing in listed equity is relatively new and, in recent years, there has been much debate about whether impact can even be achieved in secondary markets.


However, two factors go a long way to settling that argument : engagement and accessibility. Investors in listed markets can and should engage deeply with companies, behaving like true stakeholders with associated expectations and time horizons. Furthermore, as impact investing grows in listed markets, individual investors have access to more products that allow them, sometimes for the first time, to make choices that both respect their values and meet their financial objectives.

The measurement challenge

However, even as the industry has begun to understand and embrace impact investing in listed markets, challenges remain. Measuring impact has been one of the biggest issues : it remains complex, particularly in the social impact space, although there has been noticeable progress on the environmental side.

Measuring impact in listed equity is inherently difficult for several reasons : an investor is one of many shareholders and cannot specify its desired outcomes at the outset with certainty that these will not conflict with other investor priorities. Also, the non-financial information disclosed by listed businesses, even those generating a positive impact, is still limited. Of the data that is disclosed, very little of it is audited and it can be calculated in different ways, making it hard to compare companies. Progress has been made here, with several cornerstone organisations such as the Cambridge Institute for Sustainability Leadership and the GIIN establishing working groups and in some cases producing a set of standard metrics, however imperfect they might be. The Impact Alliance classification system is also a useful development in enabling investors to compare products.

Regarding carbon, measurement has progressed significantly, although it has been a long journey ! Initially, the main challenge was simply to get key stakeholders – governments, companies and consumers – to recognise that carbon emissions are something to worry about in the first place. This battle has only really been won in the last five years despite the overwhelming evidence. 

After reaching consensus on that, we faced the more complex matter of measuring emissions to allow reduction targets. Typically, the process is as follows : a large company starts out by measuring emissions in Scope 1 (from sources owned or controlled by the company) and Scope 2 (associated with purchased energy). 

However, these figures alone are very unlikely to present a true picture of the company’s footprint. Scope 3 emissions cover 15 different categories, from emissions related to upstream elements of a company’s supply chain (e.g. purchased goods and business travel) and downstream elements (use and end-of-life treatment of sold products). Scope 3 is highly complex and even the most advanced companies may only measure one or two of these 15 categories. We are a long way from having a full view of who is responsible for what. Double counting is also an important issue here. The headline, though, is that significant progress has been made, and initiatives such as TCFD and EU regulatory changes are all helping to keep up the positive momentum.

Tackling biodiversity

As the carbon measurement debate has progressed, the industry has begun to address the related and equally critical topic of biodiversity. Much of the global economy depends on natural systems working properly, on climate stability, ocean health and soil quality. When ecosystems are damaged, the natural services they provide are degraded. This is not only worrying for environmental reasons, but it presents clear and significant business risks, potentially hampering activities and value chains and causing raw material price volatility. System disruption also creates physical risks, transition risks for businesses left behind in the drive to reduce environmental harm (e.g. oil producers), and litigation risks associated with the finance industry’s exposure to sectors or companies that may face legal challenges because of their role in biodiversity loss.

Assessing these risks is a key part of our work as impact investors, and indeed for all investors. The WEF ranks biodiversity loss as one of the top five threats that humanity will face in the coming decade, and so it is very important that progress on biodiversity is faster than it was for carbon, even though it is a more complex area.

Although we have come a long way, there is still a lot to be done in the impact investing space. We believe biodiversity will take centre stage in the coming years as the industry finds a way to measure losses and gains in this area, and ultimately to assess investments for their positive or negative biodiversity impact.

Impact investing

victoria-leggett-150x150.jpg
Victoria Leggett
Head of Impact investing
View her Linkedin profile

Expertise

Impact investing - Contributing to a more sustainable future

What are the key features of impact investing?

Read more

Most read

UBP in the press 03.02.2021

Compelling opportunities in Japanese small-cap techs

Funds Society (28.01.2021) - An improvement in corporate governance, a stable government and a leading edge in digitalisation and robotics are making the Japanese small-cap segment a rich source of attractive opportunities for selective investors, says UBP Senior Analyst Cédric Le Berre.

UBP in the press 01.03.2021

Compliance in the RegTech era

Le Temps (01.03.2021) - For two decades, Swiss private banks have been engaged in a new test of endurance as they have had to adapt to a raft of new regulations, tougher tax compliance requirements and the globalisation of their client bases.

UBP in the press 18.05.2021

Agility: a key to success in Swiss private banking

Le Temps (17.05.2021) - The wealth management sector in Switzerland, seen by some as traditionalist or even downright old-fashioned, has once again shown how its agility and innovativeness still make it the leader.


Further reading

UBP in the press 28.07.2021

Investing for profitable positive impact

Money Week (31.05.2021) - How we live our lives and how we choose to invest our savings have typically been worlds apart. Happily, it has recently become possible to bring these two elements much closer together. There’s a growing number of listed companies that are working hard to understand their place in the world beyond simple profit.

UBP in the press 26.07.2021

Libor is dead, long live Saron!

Le Temps (26.07.2021) - The final countdown is underway. In less than six months, on 1 January 2022, the world of finance will enter the post-Libor era.

UBP in the press 21.07.2021

Japan’s corporate landscape enhanced by governance reform

Agefi Actifs (23.07.2021) - Significant improvements in corporate governance in Japan – as shown in particular by increasing female representation in companies' governing bodies – could drive stronger momentum in the Japanese market over the long term.