ESMA’s recent guidance on fund naming has brought greater clarity and more concrete expectations for funds making sustainability or impact-related claims.
Funds using terms like ‘sustainable’ or ‘impact’ are now expected to meet defined thresholds (e.g. 80% sustainable investments) and to provide transparent disclosures on how their stated objectives are achieved. This includes the use of relevant, outcome-oriented KPIs that demonstrate a link to at least one Sustainable Development Goal.
This regulatory shift is a welcome one. It reinforces a focus on transparency, materiality, and integrity that has shaped the approach of the Positive Impact team since inception.
These developments are especially relevant in the context of listed equity impact investing, where companies are not structured around pre-defined theories of change or bespoke impact measurement frameworks, as might be the case in private markets. Instead, listed companies often have multiple lines of business and varying degrees of reporting maturity. As a result, assessing impact in public markets requires a granular, company-by-company approach — identifying the most material contribution a company makes to a specific sustainability objective, and building a coherent measurement strategy around it.
From the outset, the Positive Impact team has focused on defining at least one core KPI for each investee company, based on its most material contribution to a clearly defined social or environmental outcome. These core KPIs are central to the investment thesis and are treated as the most significant indicator of a company’s true impact. They are not generic or outsourced: they are selected through bottom-up fundamental research, thoroughly integrated into the investment analysis, and monitored over time. This approach ensures that each company’s contribution to its chosen sustainability objective is not only measurable but actionable, allowing for robust ongoing engagement, especially in cases where further transparency or clarity is needed.
At portfolio level, aggregated data such as carbon footprint, water withdrawal, and sectoral alignment with impact themes (e.g. climate mitigation, health access, or financial inclusion) are also tracked. While these metrics help with external reporting, benchmarking, and aligning with frameworks like SFDR or TCFD, they also focus on the sustainability profile of the portfolio as a whole, rather than the unique impact of individual companies. ESMA’s guidance implicitly supports this dual-track approach by requiring both entity-level transparency (via principal adverse impacts and sustainability indicators) and product-level clarity — specifically, how impact or ESG outcomes are being achieved at fund level.
What to look for in a KPI
Selecting a robust KPI is central to assessing and evidencing the impact of a company. For the Positive Impact team, a KPI is not just a compliance tool or a generic ESG metric — it is the quantitative anchor of the investment thesis. It should reflect a meaningful, measurable contribution to a real-world environmental or social outcome, and it should provide confidence that the impact is real, attributable, and repeatable.
To serve this purpose, the prioritised KPIs ideally meet the following criteria:
- Relevant to impact and action (as much as possible): A strong KPI should not only demonstrate real-world outcomes but also inform investment decisions or engagement strategies.
- Company-reported: Data from the company itself is preferred, as it reduces the risk of methodological assumptions or aggregation errors introduced by third-party providers.
- Audited and/or externally verified: Independent assurance enhances credibility and ensures the data can be relied upon for both investment decisions and client reporting.
- Empirical: Emphasis is placed on observed and recorded outcomes rather than modelled or estimated figures, especially when the latter rely on contested assumptions.
- Transparent: The methodology and boundaries should be clearly disclosed, allowing the figure to be interrogated and contextualised.
- Comparable and consistent: Metrics should be trackable year-on-year and, where possible, compared with peers.
Conclusion
The integration of robust, outcome-oriented KPIs is essential for managing and reporting impact in listed equity investments. By focusing on core, company-specific KPIs that are directly tied to measurable, real-world outcomes, confidence can be ensured that investments have a tangible, positive effect on social or environmental issues. Complementary metrics, aggregated portfolio-level data, and transparent reporting help provide a fuller picture of impact, but the core KPIs remain the cornerstone of the investment approach. This strategy not only aligns with evolving regulatory standards but also drives meaningful action towards the sustainable outcomes sought in impact investing.
This article is an excerpt from our Impact Report 2024.
The views and opinions expressed by fund managers (internal or external) may differ from the house view. They are shared for informational purposes and do not constitute investment advice or a recommendation.
