Pengana Capital has highlighted the dangers of companies offering funds which are ‘impact washing’.
A report by Thora Frost, senior client manager of the Carbon Trust and Seb Beloe, co-head of research at WHEB, titled ‘Improving investor confidence in impact investment’ said several factors were contributing to confusion about impact investing.
The sector was seeing growing interest currently as the pandemic was prompting people to think about options that delivered a positive impact on societies by reviving jobs and tackling inequalities.
Genuine impact investing tended to refer to investments made in companies with the intention of generating a measurable social or environmental impact alongside a financial return.
However, factors like lack of definitions, common standards, guidelines were leading to ‘impact washing’. Impact washing occurred where traditional investments were labelled as impact ones to benefit from positive attributes associated with this asset class.
“Not only does [impact washing] have the potential to weaken and distort the market, it will also hinder growth by undermining investor confidence.
“The Two Degree Investing Initiative found, for example, 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. Transparency and consistency in impact reporting methodologies is therefore key to instilling investor confidence.”
As to how the situation could be improved, the pair said stronger impact reporting and methodologies would help. This had previously worked in the green bond market which had developed clear standards and independent certified verifiers providing second opinions.
“Similar developments should support the market for impact investment as investment managers increasingly seek independent verification. An independent review of impact reporting methods and underlying models improves confidence in the data and the integrity of the impact reporting.
“As impact becomes a more central part of the value proposition to investors we expect to see a growth in the demand for more rigour and standardisation of impact measurement and reporting.”
According to FE Analytics, within the Australian Core Strategies universe, the Pengana WHEB Sustainable Impact returned 7.6% over one year to 31 July, 2020 versus returns by the global equity sector of 1.9%.
Performance of Pengana WHEB Sustainable Impact fund versus global equity sector over one year to 31 July 2020
