1.3 INTENTIONALITY: GOING BEYOND NEGATIVE SCREENS The following impact investing spectrum, enhanced recently by Sonen Capital (and developed earlier by sector thought leaders GIIN, WEF, G8, and several others), defines approaches of investment management based on the level of impact that exists in an impact portfolio. Five categories of impact are defined below, moving (left to right) from lower to higher impact. Traditional Investing Competitive Returns
1. Responsible Impact Investing ESG Risk Management
2. Sustainable 3. Thematic Impact Investing Impact Investing ESG Opportunities
4. Impact First Investing
5. Philanthropy
Maximum-Impact Solutions
Seeks financial Investments are returns regardless screened but based of Environmental, on ESG risk Social or Governance (ESG) factors
Sustainability factors and financial returns drive investment selection
Targeted themes and financial returns drive investment selection
Social and environmental considerations take precedence over financial returns
Negative Screens: Tobacco Alcohol Weapons Gambling Pornography Nuclear Energy
Factors Considered: Carbon footprint Resource use Waste reduction Compensation Product safety Gender equality
Solutions For: Carbon footprint Resource use Waste reduction Compensation Product safety Gender equality
Support For: Innovation & Risk Taking Proof of Concept/Pilots Enabling Environments Commercial Capital Leverage
Financial returns disregarded in favor of social and environmental solutions
TABLE 1 - Credit: Sonen Capital
The five categories of impact investing are as follows: 1. Responsible Also known as Socially Responsible Investing (SRI), this approach involves the negative screening of investments due to conflicts or inconsistencies with personal or organizational values, non-conformity to global environmental standards, adherence to certain codes of practice, or other such binary impact performance criteria. The term ‘Responsible’ is also used to capture investment activity that might proactively contain a social or environmental component in its strategy. 2. Sustainable Sustainable investments move beyond a defensive screening posture, actively looking for investments that are positioned to benefit from market conditions by integrating environmental, social, and governance (ESG) factors into core investment decision-making processes. 3. Thematic Thematic or mission investments have a particular focus on one or more impact themes, such as clean water or preventing deforestation, and work to channel investment allocations in those particular directions. These are highly targeted investment opportunities, in which the social or environmental benefits are fully blended into the value proposition of a commercially positioned investment. 14
