As with the popular adage ‘if a tree falls in the woods and nobody hears it, did it make a noise?’, if a sustainable investor can’t measure their impact, are they a sustainable investor at all?
It is tricky. On the one hand, we don’t want positive change to be held back by the lack of data. On the other, we can’t be carelessly claiming sustainability without knowing what the investments are doing.
The good news is the data is evolving rapidly and greater emphasis is being placed on measurability of impact. The biggest institutions in the world are taking big strides. HESTA in Australia and PGGM in the Netherlands are among a growing group of institutions who have taken the step to map their portfolios to the UN Sustainable Development Goals (SDGs). Many Local Government Pension Schemes in the UK are doing the same.
This can seem like a daunting task, especially given the limitations in the data to measure some areas of sustainability. And once you have this data, what can you do with it? At the end of the day, you still have to consider the investment characteristics (return, risk and liquidity) and can’t make decisions on the basis of sustainability in isolation.
The way we help clients with this is:
- Set clear sustainability goals: The SDGs are a great guide for setting your sustainability priorities but ultimately we believe investors should spend governance budget on the areas of sustainability that are most important to them and their beneficiaries (members, savers, policy holders, tax payers, etc.). It may even be that these goals are only set on that part of the portfolio to start with.
- Define the metrics and targets: These can be documented in a framework alongside your other investment targets/constraints to assess the current position, and progress, against all investment, risk and sustainability goals. This means well informed decisions can be made at a holistic level.
- Select the best available data for each metric: There is no gold standard for measuring sustainability and impact that is consistent across each asset class. We help clients select the best data for each metric as we are not tied to a single source or methodology. We recognise the need to be pragmatic here, the perfect data may not be available and this shouldn’t get in the way of making progress. As we say.. don’t let perfect get in the way of the good.
The developments in measuring sustainability and ESG/impact investing are really exciting and we are delighted to be supporting our clients on this journey.