By Sabine Chalopin, ESG and Impact Director, Denham Capital

The global health and economic challenges of 2020 sharply accelerated the on-going shift in investment strategies towards ESG and impact. Driven by pressures to ‘build back better’ and demonstrate action on macro societal challenges in the wake of the COVID-19 pandemic, impact investing has taken centre stage in global investment decision-making and is not likely to step out of the spotlight anytime soon.

The rise of impact investing

The Global Impact Investing Network (GIIN) estimates the pool of capital for impact investments to be $715 billion, and growing – spanning a wide range of sectors, regions and asset classes. In the ever-changing context of ESG ratings, reporting and disclosure mandates and stakeholder demands for transparency, funds are increasingly scrutinised on their ability to deliver returns for society at large.

esg playbook

At Denham Capital, we see ESG and impact as being two sides of the same coin – whilst ESG factors can be used as a tool to ensure responsible risk management, impact focuses on the type of investments targeted.   At Denham Capital, the impact investing we target prioritises both positive social and environmental impact and financial returns, with the goal of building sustainable, long-term investments. For example, Denham’s investment strategy in the infrastructure sector, specifically in power, is supporting the transition to affordable, clean energy, which is one of the United Nations Sustainable Development Goals (UN SDGs).  Each clean energy project we invest in is developed to the highest environmental and social standards, with a strong focus on stakeholder engagement and community development. Our investments therefore contribute to other UN SDGs, such as access to clean water, gender equality and decent work and economic growth.

Our Sustainable Infrastructure team has developed a comprehensive impact management system to identify impact criteria and goals at both the portfolio and asset level and track key performance indicators with measurable units.  Whilst outputs of impact investments, such as the amount of clean energy produced or local employment figures can be tracked, multiple reporting frameworks (such as GRI, SASB, CDP, HIPSO) currently result in variability in reporting. As a result, it can be difficult to compare the impact of an investment from one institution to an impact investment from another.

Standardising metrics

As a growing number of portfolios align their investment strategies with impact-driven objectives, the discussion on measuring impact has moved centre stage. The need to have robust non-financial metrics is essential to ensure credibility of impact investments and to prevent green-washing.

In response to this challenge, the International Financial Reporting Standards Foundation (the organisation that oversees the International Accounting Standards Board) has announced that it is on track in the creation of a Sustainability Standards Board (SSB) to drive the consolidation of ESG and impact metrics, with an announcement expected at this year’s COP26. This is expected to provide a gold standard for ESG reporting and will build on existing frameworks such as TCFD and GRI.  We welcome this drive towards standardisation and believe that it will be successful in moving more capital into ESG and impact focused investments, which already shows no signs of slowing down.

Looking ahead

2021 will be a year for significant growth as we look to rebuild a more sustainable and resilient society. Impact investing has a critical role to play in facilitating this transition, with an urgent need for capital to drive ‘green’ economic recoveries and address broader societal challenges. To fulfil this potential, impact investment strategies must consider effective and practical measurement systems. The increasing pressure for consolidated reporting frameworks will also provide greater data and transparency and support the significant growth of industry.

About the author

Sabine Chalopin is the ESG and Impact Director for Denham Capital’s Sustainable Infrastructure team and is responsible for screening, managing, and monitoring investments for environmental and social risks and opportunities. She has 15 years of ESG experience in the infrastructure sector, and sits on GRESB’s Infrastructure Benchmark Committee.