Measuring the impact of investment decisions is essential in the transition to a sustainable economy writes Darina Barrett, KPMG’s Dublin based Asset Management lead for EMA. With this in mind, KPMG and the Cambridge Institute for Sustainability Leadership (CISL) are developing an online tool that provides insight into the impact of investments on people, the environment and society.
Navigating a course for investors and other stakeholders is fraught with complexity and risk as the clock ticks inexorably for a planet in deep stress as a result of environmental degradation.
Inevitably, COVID-19 has accelerated and amplified the need for solutions. Thus, it’s timely that KPMG and the Cambridge Institute for Sustainable Leadership (CISL) will be working closely together to make the social and environmental impacts of investments more visible. The core of this collaboration is the development of an online tool to be launched this autumn that provides insight into the influence of investments on people, the environment and society. The tool will be particularly suitable for asset managers and asset owners for whom it is generally challenging to measure the impact of their investments at portfolio level.
The basis for this collaboration is "The Investment Impact Framework" developed by CISL alongside a group of leading asset manager and asset owners convened by CISL – The Investment Leaders Group. This framework provides insight into the impact of investments on people and the environment based on six themes derived from the Sustainable Development Goals (SDGs) of the United Nations. The online tool that KPMG and CISL are developing will make the framework much more easily accessible for asset managers and owners. The goal is to assess investment portfolios based on a common impact standard, enabling both asset managers and investors to make well-considered sustainable choices with their investments.
With our environment, investment decisions, governance obligations and shareholder expectations being increasingly interlinked, the role of the financial sector in shifting to a sustainable model cannot be overlooked. The old adage that you can’t manage what you can’t (or don’t) measure remains true. Measuring the impact of investment decisions is essential in order to properly interpret the role of the sector in the transition to a sustainable economy.
Asset managers allocate billions in investments on behalf of institutional investors, pension funds and individuals. As my Netherlands based colleague Leonie Jesse of KPMG Sustainability says; “The return on these investments is, of course, very important. But the realisation that investments can have a major impact on people, the environment and society is increasing enormously. Institutional investors want to be able to assess the robustness of their investment portfolios in the light of current societal changes, such as global warming, growing scarcity of raw materials and population growth. In addition, they increasingly receive questions from stakeholders about the impact of their investments. This forces asset managers to find ways to measure the impact of their investment portfolios and report to their clients and other stakeholders.”
However, according to CISL's Dr Jake Reynolds, measuring the impact of investments at portfolio level remains a significant challenge for asset managers. “Measuring the impact on one company on one specific theme is reasonably simple provided the requisite data are disclosed. It is a very different story however when a complete investment portfolio is examined across multiple sustainability themes. Low levels of data coverage, lack of familiarity with the underlying issues and an absence of standardisation render neat numbers and comparisons difficult. CISL’s framework offers a solution to this problem in the form of six simple quantitative tests based on readily available data. The ultimate goal is to assess all portfolios on a common basis to bring clarity for investment clients and beneficiaries. Our collaboration with KPMG will help us advance the framework in the future as new data sources become available, including in the important area of social impact.”
As COVID-19 adds to the challenges facing both society and business we must not lose sight of the need to pursue sustainability solutions. With this in mind, we look forward to launching the tool in the autumn. If you have any questions or observations in the meantime please do get in touch.