Andy Du Pont
December 12, 2023
Where you decide to invest your money makes a difference. The underlying actions of any company or investment will have a net effect on the environment and society in one of three ways – positive, negative or neutral.
To simplify the identification of these actions, at Australian Impact Investments (Aii) we screen all investments using a proprietary Impact Spectrum. The Spectrum classifies investment opportunities in individual companies, managed funds or structured investment vehicles by the products or services they provide or support and their operating practices.
The Spectrum, shaped from the extensive experience of our team across ethical, responsible and impact investments together with the work of the Impact Management Project (now Impact Frontiers), classifies every investment opportunity as one of five types of impact:
(May) Harm People & Planet – The investee is directly involved in activities that harm or may harm people or planet. To understand this, we use negative screens. These screens exclude investments with involvement in certain sectors, companies or practices that have a negative impact on the environment or society. For example, we look at whether the product and/or service of an investment opportunity are involved in an area that may harm people or the planet. For example, investments in industries such as tobacco, gambling or armaments.
Avoid Harm – The investee has no direct involvement in activities that harm people or planet.
Benefit People & Planet – The investee is directly involved in activities that benefit people and planet and acts to avoid harm. Using positive screens, examples of such activities include healthcare, renewable energy or social infrastructure.
Contribute to Solutions – The investee intentionally seeks to generate positive, measurable outcomes for people and planet and acts to avoid harm.
Catalyse & Contribute – The investee intentionally seeks positive, measurable outcomes for people impact that would otherwise not be possible but for acceptance of disproportionate risk and/ or concessional financial returns.
To be classified as a ‘Contribute or ‘Catalyse’, investments must meet three criteria:
- Intentionality: The impact must be intentional; it cannot just be a by-product of operations.
- Additionality: The impact must be additive, i.e., not just ‘business as usual’.
- Measurement: The impact must be measured since the quantum of impact cannot be articulated if it is not measured.
The Impact Spectrum is fundamental to our work in helping clients align their investment portfolio with their values. We classify each investment in a client’s portfolio against the Spectrum and develop an ‘impact asset allocation’ that sits alongside a traditional strategic asset allocation in an Investment Policy Statement. You can read more about our approach to impact asset allocation targets in Developing a Total Impact Strategy.
If you would like to learn more about how we classify investments, we encourage you to reach out to the team, we’re here to help.