28-05-2021 · SI Opener

SI Opener: Devaluation of the word impact investing – three questions

With the introduction of the Sustainable Development Goals (SDGs), so began the rise of impact investing in listed equities and credits. I still believe that this is a good thing. However, there are certain aspects of impact investing that are less clear in the listed space. What now keeps me awake at night is the prospect of genuine impact investing being undermined or demeaned by those who claim to be participating in it for their own public relations purposes, or those who simply misunderstand what it is. And with those I also include our own organization. We need to be awake and aware of this issue.


  • Masja Zandbergen-Albers - Head of Sustainability Integration

    Masja Zandbergen-Albers

    Head of Sustainability Integration

How impact investing differs from sustainable investing

Impact investing is defined as investments made into companies, organizations and strategies with the intention of generating a social and environmental impact alongside a financial return. It is an increasingly popular means of pursuing objectives on the ground such as the SDGs. These seek to make a difference in areas such as eradicating poverty (SDGs 1,2) and reducing inequalities in society (SDGs 5,10) through investment capital rather than charity.

This differs from sustainable investing, where the use of environmental, social and governance (ESG) factors is intended to minimize the negatives that come with all corporate activity. This can be done by avoiding companies with poor environmental records or involvement in corruption. But it doesn’t necessarily have to make an impact on the ground; finding the companies with the highest ESG score compared to peers won’t directly contribute to education or health in Africa. Most notably, a tobacco company (which we exclude) can have a very high ESG score, but clearly contributes negatively to SDG 3 for good health and well-being.

The Global Impact Investing Network (GIIN), which was historically the realm of traditional impact investors, is now slowly seeing more and more traditional asset managers becoming members. The GIIN is an important resource for, among others, defining the core characteristics of impact investing and giving access to a database of impact measures.1 It is currently working on providing guidance for impact investors in listed equities and explaining how this differs from sustainable investing. Keep following this space!

How to attain additionality in listed impact investing

As equity investors and bond investors, most of the time we are not providing additional capital to companies. This is different for traditional impact investing, where capital is directly invested in projects with clear impact in areas such as water, renewable energy, microfinance and agriculture in developing countries. Of course in the listed space, allocating capital can have an impact through increasing a firm’s cost of capital (which becomes important when money needs to be raised), or by signaling to stakeholders that the company should change its behavior. Empirically there, is not a lot of evidence yet that this is particularly effective.2 However, we are seeing the latter becoming more important as certain areas of business are becoming less and less acceptable to invest in (tobacco, controversial weapons, coal). At the same time, some businesses have become more attractive to investors in areas such as energy efficiency products and electrical vehicles. This sends a clear signal to companies active in this space. Combined with engagement, we could argue there is an impact to be made by investing in listed securities.

But there is also a second way to create additionality – namely by researching to what extent companies produce products and services that make a clear contribution to some of the sustainable development challenges, and to what extent they develop new business models and expand their businesses into otherwise underserved markets, countries or regions. Some examples are innovative companies that are reducing their footprints via recycling, and pharmaceutical companies that work on pricing models based on the efficacy of the product, who develop cheaper access to health care via digitalization, or give access to medicine in underserved markets.

These companies create an impact versus the status quo. Investing in them will provide them with a shareholder who supports their mission and long-term orientation, which helps the company achieve both the financial and impact goals.

Determining impact of conglomerates

Investing in listed securities often means that we invest in large, diversified companies. The additional impact of companies that have one product or provide a single service is easier to determine, but still requires research, as their activities can still do harm. Think of a solar panel company that does not take care of the environment, has no respect for labor standards in the supply chain, or does not take care of its waste. On the whole, it would have a net negative impact on society and the environment.

In our SDG framework, we take all of these issues into account.3 We look for companies that derive more than 33% of their revenue from contributing to one or more of the goals and do no harm in the other part of their business. Companies that are active in underserved markets based on the Human Development Index get extra credits. And the value proposition is important – we look for companies that provide products and services that are highly cost effective and widely available, and those with major technical advances at a reasonable cost.

Means of measurement

And last but not least, it is important to have a means of measuring impact, to show that your investment really is making a difference. Robeco has done a lot of work in this arena using real money in real strategies. Many different metrics are used to calculate the impact that their products or services makes on the ground. However, in representing impact measures, we need to be careful in our wording.

One European financial firm was recently sued for allegedly making misleading impact claims as a means of gaining new business. In the US, the SEC regulator now flags ‘potentially misleading claims’ by strategy managers over the claimed use of sustainable investing, while new regulations in the EU under the Sustainable Finance Disclosure Regulation (SFDR) will police this arena more thoroughly.

For our Sustainable Water strategy, for example, which invests in companies engaged in making advances in clean water distribution, sanitation and waste water treatment, we recently updated the impact measures. It was able to show that in 2020, its investee companies distributed 48 billion liters of clean water for every EUR 1 million invested, enough for 759 average households. That makes a real difference to the lives of people who were previously without clean water, as well as earning returns for our clients.


Next to updating the figures, we added extra explanations to ensure that these reports will not be accused of being misleading (greenwashing). In summary, we added information on the methods (and limitations) that we use to estimate impacts, adding notes on sources used throughout. We also clearly state that these impacts are caused by investee companies and therefore being ‘associated with’ the strategy, rather than being caused by an investment in the strategy.

Having mentioned my three main concerns on devaluation of the true meaning of impact investing, I am still quite proud that our impact investing claims can be measured, and that this bespoke range now accounts for 12% of all assets under management at Robeco. As client interests grow, so will the demand for impact investing, and we need to make sure we keep critical towards our approach and communication.


1 https://thegiin.org/characteristics
2 Is Exclusion Effective?, David Blitz and Laurens Swinkels, The Journal of Portfolio Management Ethical Investing 2020
3 https://www.robeco.com/en/insights/2018/05/how-to-quantify-a-companys-contribution-to-the-un-sdgs.html

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