Mission-aligned investments have undergone an unprecedented expansion over the past decade. I’ve kept close tabs on this, as Schroders’ Head of Sustainability in North America — representing both Schroders’ and BlueOrchard’s impact investing efforts — and over the course of my 15-year career in the investment industry. Over the years, from the vantage point of the impact investing professionals I work with, one principle has emerged as a cornerstone for ensuring integrity, accountability, and progress for values-aligned investing. That principle is transparency.
With its potential to address the monumental challenges outlined by the UN Sustainable Development Goals (SDGs), impact investing has garnered attention from major asset managers, promising to channel capital towards meaningful change. While solutions have come from across the investment, corporate, and public landscape, there is a clear need for more conscious investment in businesses and activities that help tackle the world’s biggest challenges. The market value of public equities and bonds is ~$229 trillion, compared with assets under management of ~$9.85 trillion in private assets. Impact investing will need to spread beyond private market niches.
Scaling impact, therefore, requires a cross-asset class approach. Investors and active managers across public and private markets have an important role to play in providing capital and non-financial support to assets and companies across their maturity curve. Within this context, transparency is not just a “nice-to-have,” but an imperative.
In part, this is because, even amidst this growth, skepticism around values investing looms. There has been an influx of new players lacking a depth of expertise in impact, and with this there has been a wide spectrum of rigor and robustness in practices, raising concerns about impact-washing and greenwashing. To navigate these murky waters, transparency serves as a guiding light for investors.
Transparency entails more than mere disclosure; it embodies a culture of openness, accountability, and continuous improvement. It necessitates clear and transparent impact reporting, alongside independent external verification of impact frameworks, enabling stakeholders to benchmark practices and hold actors accountable.
Schroders and BlueOrchard, which have collectively over $4 billion in impact funds under management, have embraced transparency. This has meant not only opening the books but also shedding light on both successes and shortcomings. We have developed a clear, and accountable impact framework, by applying it across listed and private assets globally to achieve impact at scale with integrity.
This framework includes pillars of impact management, measurement (quantifiable in a scorecard assessment), and governance, the latter of which includes an independent Impact Assessment Group which reviews transaction- and portfolio-level impact. We further subject our tools, processes, and reporting to external audit, including validation by BlueMark (available here), demonstrating the required commitment to rigorous scrutiny and improvement.
Schroders also aligns with industry standards such as the Operating Principles for Impact Management, which has 184 signatories representing $516,722 million in assets under management. The Impact Principles delineate nine key principles to embed impact rigorously across the fund lifecycle. Crucially, the ninth pillar focuses on disclosure and independent verification, instilling much-needed transparency in the market. These principles not only define good impact practice but also serve as a yardstick for investors to differentiate authentic impact managers from superficial endeavors.
At the end of our first year as a signatory, our Disclosure Statement served as an opportunity to reiterate alignment with the Impact Principles, including independent verification of our impact practices and a commitment to annual disclosure going forward. We welcome this independent verification and transparent disclosure, which brings much-needed discipline, clarity, and accountability to the impact investing market.
We encourage those of our peers who are committed to impact and values investing to consider becoming signatories, thereby encouraging broader adoption of these rigorous standards. We also urge values-aligned investors to hold asset managers to account when it comes to developing robust impact frameworks and subjecting them to external review. While this demands significant resources and expertise on the part of the asset management firm, the payoff, both in achieving mission and ensuring the integrity of the values-aligned investing sector, is well worth it.
Transparency is the linchpin of values-aligned investing. It fosters trust, drives improvement, and ensures that capital is channeled toward endeavors that truly make a difference. As the impact market continues to evolve, embracing transparency will be pivotal in realizing its transformative potential.
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