Fund managers overestimate social and environmental impact
Middle-aged managers fare best
Fund managers overestimate the social and environmental impact they bring to investments by an average of 10%, according to a new report from Snowball.
The survey asked managers to self-assess their impact across five categories - missions and behaviours, impact process, active ownership, catalytic and impact risk management - and then moderated the scores according to Snowball's best practice framework, and found a range of scores from 7.1 to 13.3 out of 15.
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It found that across all categories but impact risk management, middle-aged managers (with five to 20 years' experience) outperformed their older and younger counterparts, with the former lacking "the same commitment to impact" while the latter struggled with a "limited track record and an inability to demonstrate impact", according to the report.
Private market managers outperformed their public market counterparts on average as it is "easier for managers to make a contribution in private markets where capital flows are additional and the investor typically has greater engagement with, and influence over, its investees".
The report found that all of the managers surveyed are "intentionally and primarily investing for impact", although they scored higher in their intent and mission surrounding investment rather than the behaviours themselves.
Specialist managers "significantly" outperformed generalists across all categories, but this was "particularly pronounced" in regards to managers' mission, with those only investing for impact able to more clearly define this fact than those who invest across "non-impact themes".
Impact intent outscored impact measurement, management and transparency, and the report noted that the availability, thoroughness and quality of data provided by managers "can be patchy", which raises "concerns about the effectiveness of impact management".
Debt managers performed surprisingly well in the engagement category of active ownership, despite not having voting rights, and the report highlighted that "active engagement forms an important part" of a debt manager's responsibilities, while private equity also scored, with the best managers engaging on both a portfolio and industry level, along with a company one.
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The catalytic area reflects a manager's ability to bring capital to new and undersupplied markets, a category in which private debt managers outshone their competitors as the "mostly likely to be supporting underserved markets by creating products to address gaps in the market" along with "actively seeking to support and influence the industry".
Impact risk management is the only category in which the most mature managers outperformed their middle-aged counterparts, a fact the report attributed to "their experience implementing processes to mitigate and manage risk across product lines".
Small houses, with ten or fewer employees, were found to be the highest risk as they are "typically newer managers without a track record", and the largest managers, with more than 50 employees, struggled due to their likelihood in being generalist managers, leaving those companies between ten and 50 employees as the best at impact risk management.
Abigail Rotheroe, investment director at Snowball said: "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 focussed 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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