We asked ChatGPT what Impact Investing is, and this is what it said:

𝘐𝘮𝘱𝘢𝘤𝘵 𝘪𝘯𝘷𝘦𝘴𝘵𝘪𝘯𝘨 𝘪𝘴 𝘰𝘧𝘵𝘦𝘯 𝘢𝘭𝘪𝘨𝘯𝘦𝘥 𝘸𝘪𝘵𝘩 𝘧𝘳𝘢𝘮𝘦𝘸𝘰𝘳𝘬𝘴 𝘭𝘪𝘬𝘦 𝘵𝘩𝘦 𝘜𝘯𝘪𝘵𝘦𝘥 𝘕𝘢𝘵𝘪𝘰𝘯𝘴 𝘚𝘶𝘴𝘵𝘢𝘪𝘯𝘢𝘣𝘭𝘦 𝘋𝘦𝘷𝘦𝘭𝘰𝘱𝘮𝘦𝘯𝘵 𝘎𝘰𝘢𝘭𝘴 (𝘚𝘋𝘎𝘴) 𝘢𝘯𝘥 𝘪𝘴 𝘨𝘢𝘪𝘯𝘪𝘯𝘨 𝘵𝘳𝘢𝘤𝘵𝘪𝘰𝘯 𝘢𝘮𝘰𝘯𝘨 𝘪𝘯𝘥𝘪𝘷𝘪𝘥𝘶𝘢𝘭𝘴, 𝘪𝘯𝘴𝘵𝘪𝘵𝘶𝘵𝘪𝘰𝘯𝘴, 𝘢𝘯𝘥 𝘧𝘶𝘯𝘥𝘴 𝘴𝘦𝘦𝘬𝘪𝘯𝘨 𝘵𝘰 𝘢𝘭𝘪𝘨𝘯 𝘵𝘩𝘦𝘪𝘳 𝘪𝘯𝘷𝘦𝘴𝘵𝘮𝘦𝘯𝘵𝘴 𝘸𝘪𝘵𝘩 𝘵𝘩𝘦𝘪𝘳 𝘷𝘢𝘭𝘶𝘦𝘴.

Large Impact funds generally have their own bespoke, highly sophisticated frameworks.

But when other funds are asked to report on their impact, they typically consider the extent to which the issuers of the fund's investments support the UN SDGs.

So how hard is that to do? 🧮

It depends on the degree of granularity.

We have seen asset managers breaking down an investee company's revenues into highly-specific activities, and map these not only to the 17 UN SD Goals, but also the 169 SD Targets that sit beneath the overall goals.

We however favour the Cambridge Impact Framework. We adopted it as our Impact framework because it is simple, sensible and comparable.

Moreover, the CISL is gaining ever more respect as an academic centre for sustainability analysis, which gives the Framework credibility with asset owners.

We are sometimes challenged on why we deploy a framework where the overall assessment is not intensely focused on the investee companies' products and services.

The answer is that a company's products can have a considerable positive impact on the world, but its activities also have considerable 'operational impact' that should be assessed.

Consider this hypothetical example 💭

An Asian company produces a branded pharmaceutical that reliably treats childhood cancers.

This company may appear in many impact funds, due to its life-saving product – highlighting its role in supporting SDG 3 (Good Health and Well-Being).

However, the price point of the product is unaffordable outside of Western markets, the product is packaged by child workers paid $2 per day, and the net waste and emissions generated by the manufacturing process are vast.

Thus by using the Cambridge Impact Framework, we can see how these activities are actually detrimental to SGDs 1, 8,10, 13 & 15.

So should we look at sustainability or impact? 🤔

Since inception, we have always believed that a true sustainability assessment must involve what is now called 'double materiality'; how sustainability issues affect the company, and how the company impacts the world.

So we apply a SASB/IFRS ESG Risk framework to every company, and also apply the Cambridge Impact Framework alongside it.

And when one considers recent EC proposals and the enquiries we are receiving, it is clear this will be the expectation from fund managers moving forward.

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