What was the challenge?
To build the trust that the impact investing space needs to mature, clear guidance and structure around impact analysis and reporting is paramount. An inherent challenge facing the growth of the sector is the risk of ‘impact washing’, where traditional investments are merely relabelled as impact investments to benefit from positive attributes linked to this relatively new investment approach.
Not only does this have the potential to weaken and distort the market, it could also hinder growth by undermining investor confidence. For example, The Two Degree Investing Initiative found, that among retail investors who said they were not interested in investing in ‘impact’ funds, 48% said it was because of scepticism about the claims being made.
WHEB Asset Management, which has one of the longest established impact investment strategies in listed equities, publishes an Annual Impact Report which quantifies the positive social and environmental impact of its portfolio – measured against the UN Sustainable Development Goals. Underpinning this, a detailed methodology sets out WHEB’s approach to assessing and measuring the positive impact associated with the products and services sold by portfolio companies.
In 2019, WHEB introduced a new analytical ‘impact engine’ to assess the overall impact intensity of the products and services offered by companies sitting at the heart of its investment strategy. A year later, the company set out to further advance its guidance and structure around impact analysis and reporting. In particular, it sought reassurance that it was using the most appropriate methods, in-line with best practice and that the underlying calculations were robust.
“In 2020, we felt that it was appropriate to have our methodology peer-reviewed by an independent expert,” said Seb Beloe, Partner and Head of Research at WHEB Asset Management. “The Carbon Trust has been a leader in codifying best practice in impact reporting and its experience in assurance made them the right partner to test the rigour of our approach,” he added.
How did we help?
WHEB’s investment strategy focuses on the opportunities created by the transition to healthy, zero carbon and sustainable economies. WHEB applies nine broad themes to select its globally diversified portfolio of companies. The Carbon Trust peer reviewed this approach against our own knowledge and experience, as well as current best practice standards and methods on impact reporting.
Through the peer-review process, the methodology was found to be based on reasonable assumptions and estimations, and formulated in line with recognised international best practices for impact reporting.
What were the benefits?
The work we undertook for WHEB demonstrated the company’s commitment to a level of transparency that is needed in order to expand impact investing.
“We were very pleased that the Carbon Trust review concluded that our methodology is consistent with international best practices. This has provided investors and other WHEB stakeholders with improved confidence in the data and helps underpin their trust in the integrity of our impact reporting,” says Beloe.
“In an area of investment management and measurement that is still relatively new, the peer review process helped to confirm best practice and has validated the approach that WHEB has developed. This will give us confidence to extend our work in this area, including pushing companies to report more impact-oriented data.”