Fund managers are overestimating the level of environmental and social impact their investments are having, according to a new report.
Snowball, the multi-asset investment vehicle focused creating positive outcomes for people and planet as well as financial returns, said fund managers were misjudging the impact they bring to their investments by an average of adding 10% when measured against Snowball’s proprietary best practice framework.
In its latest Impact Assessment Report, Snowball surveyed 21 fund managers across its five categories of manager impact and moderated the managers’ self-assessed scores against its own proprietary impact framework.
It found that private market managers were leading the way with private debt producing the highest impact. However, public debt managers scored the lowest investor contribution.
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The report said: “Private market managers scored higher than those in public markets, likely reflecting private managers’ focus on active impact management with impact data typically more readily available in the private markets along with greater transparency for investors.”
There was also significant variation in scores across managers: the average score across all 21 managers was 10.3 out of 15, but scores ranged from 7.1 to the highest score of 13.3, with significant deviations within and across asset classes.
As ESG becomes more routinely integrated into fund group’s investment processes, more fund managers are also looking to consider the impact their investments have on the environment and society. Snowball’s report said groups were keen to engage with the report suggest manager impact is an area in which they want to improve.
Abigail Rotheroe, investment director at Snowball, commented: “Our goal is to push fund managers to improve their approach to impact returns – to bring them on par with their focus on financial returns. One does not preclude the other. This is the time for fund managers to think about what they as asset owners can do to improve the impact of their investments.
“We invest with fund managers dedicated to improving their own impact as well as that of their underlying investments. We are looking for impact-focused pioneers that walk the walk – they take their stewardship responsibilities seriously and want to grow the impact investing market because this is the future of investment – not just another product offering. By sharing our approach and results, we hope to spark debate and improvement.”
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Snowball’s Impact Assessment Report also found specialist managers, which only invest for impact, significantly outperformed generalist managers. It said managers with a “clear mission embedded throughout the organisation” and those that had protection against “mission drift”, such as B Corp status, performed better than managers that invested across non-impact themes.
CEO of Snowball Daniela Barone-Soares said the firm’s proprietary impact measurement framework has helped the team analyse fund managers’ efforts when there is no standard industry framework or benchmark to compare against.
She said: “Any effort to make investments work harder for society should be applauded, but the fact there is still no consistent framework to measure impact is proving a real obstacle for fund managers trying to make a difference whilst delivering attractive financial returns. Our research shows that even those managers with a strong ESG culture find it difficult to measure the impact they make on ESG issues.
“Snowball’s proprietary impact measurement framework seeks to help solve some of these obstacles and there are a number of measures we would like to see implemented across the industry.
“A commitment to impact leadership at all levels is crucial, as is having protection in place against mission drift, such as an asset lock or a commitment to the mission included in articles of association. More public reporting is also necessary. It is not uncommon for managers to not report on impact beyond their own investor base. Transparency is crucial to ensuring accountability, and to inform and engage those within and outside the sector to drive real change.”
