30 Big Ideas Shaping ESG: Measurement

The Actis Impact Score

Actis

The challenge: Creating a common framework that helps managers track impact.

The approach: The Actis Impact Score is an open-source framework, which applies the impact measurement and management principles established by the World Bank’s International Finance Corporation and the Impact Management Project. The score is available to other asset managers, promoting peer-to-peer collaboration and the evolution of a would-be game-changing universal industry standard.

Actis says: “Rooted in the UN SDGs, AIS provides a framework to target and measure environmental and social impact through verifiable metrics.”

We say: Being able to demonstrate tangible impact is the holy grail of responsible investing.

Linking ESG to financial value

Eurazeo

The challenge: Tracking the financial value of ESG improvements.

The approach: The Paris-based firm has applied a methodology that defines core KPIs and associated costs, as well as specific operational indicators relevant to a business (eg, kilowatts used per kilogramme of laundry washed), which, when combined, map performance. The result? A clear demonstration of the relationship between improved ESG, cost reductions and savings, and increased management support for new initiatives.

Eurazeo says: “The main reason for launching this project was to demonstrate the financial value created by CSR policies and their contribution to a responsible and long-term value creation.”

We say: A useful demonstration of how ESG contributes to value creation.

Standardising impact measurement

The IMP+ACT Alliance

The challenge: How to assess impact without being swayed by subjective judgments.

The approach: The IMP+ACT Classification system is a digital tool that enables asset managers globally, including private equity firms, to report their ESG and impact management practices in a standardised format and to classify investment impacts. Developed by over 150 asset managers and organisations, including Deutsche Bank, Bridges Fund Management and Nuveen (which applied the methodology to its global impact strategy), the scheme is truly industry wide.

Nuveen says: “The initiative helped by advancing the goal of fostering transparency among asset managers regarding the variety of impact measurement approaches and rating techniques that they use.”

We say: The wide range of participants suggests this has scope to change the impact landscape.

Tracking Australian farm emissions

Macquarie Infrastructure and Real Assets

The challenge: Reducing emissions in agriculture, which accounts for 13 percent of Australia’s emissions.

The approach: FarmPrint, developed by Australia’s Energy, Emissions and Efficiency Advisory Committee and backed by institutions including MIRA, allows Australian farmers undertaking large-scale cropping to measure their emissions footprint both on-farm and in the supply chain (for the farm as a whole or per tonne of output). Tailored to a specific segment, the method allows those farmers to benchmark their performance against their peers and to assess the impact of alternative farming methods on emissions.

MIRA says: “Without a robust measurement tool, it is difficult for farmers to determine what they can do to improve.”

We say: A vital initiative in a critical area.

Calculating the financial impact of ESG

Triton Partners

The challenge: How to estimate the financial value of ESG initiatives.

The approach: Using proprietary methodology, the GP has expanded its ESG KPI annual portfolio company reporting to include estimates on the financial value of ESG initiatives. The exercise provides a clear indication of where the GP can offer further support and resources. It also makes clear the business case for taking action. By showing the financial implications of ESG initiatives, Triton says the revised ESG KPI reporting process has changed the way the firm interacts with its portfolio companies and renewed the ESG conversation within the firm.

Triton says: “We believe we are one of the first PE firms to estimate financial value in this way across a portfolio.”

We say: The exercise provides supporting evidence for the belief that better ESG practices create financial value.