How to Invest for Real-World Impact

Specialist investment consultancy Tideline has launched a ‘how-to’ guide for new market entrants to better understand impact and sustainable investment.

The guide, titled ‘Truth in Impact’, is intended to aid investors in defining their own approach to sustainable investing, according to the degree to which they integrate three ‘pillars’ of investing: intentionality, contribution, and measurement.

In the document, New York-based Tideline also explains why the impact investment label should be reserved only for funds and strategies that combine the three pillars significantly.

According to Tideline, intentionality refers to how much a fund or strategy explicitly targets specific social or environmental outcomes. Contribution describes investors playing a differentiated role to enhance the achievements of the targeted outcomes from the first pillar. Measurement involves monitoring and reporting impact performance based on measurable inputs, outputs, and outcomes.

Tideline hopes that, by using the guide, investors can assess the level to which strategies incorporate the three pillars to accurately differentiate between impact investing, thematic investing, and ESG-integrated investments.

By understanding the different labels, Tideline said asset managers can better understand what they mean, how they are used and how the market will likely react.

“With impact investing fast becoming a mainstream investment category, clarity and truth in labelling… is essential for market integrity,” the consultancy said.

The report follows a UK study in June by Research in Finance that found institutional investors were facing a widening gap in knowledge around impact investing, compared to customer-facing intermediaries.

It also found that institutional investors were least likely to understand the term ‘impact investing’ compared to the terms ‘ESG integration’, ‘sustainable investing’, and ‘engagement/stewardship’.