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by Natacha Guerdat

Head of Research at Asteria IM

The future holds more unseen crises and challenges to tackle. To facilitate the transition into a sustainable future, investors globally are putting their capital to work.  Investments made with the future of economies, planet, and people in mind are called impact investments. 

The financial industry as we know it rests almost entirely upon analyzing financial data. In addition to that, impact investing calls for reliable and comprehensive sustainability data. This data makes it possible to identify the trends and production-consumption systems that can facilitate the transition into a more sustainable economy. All the while selecting profitable companies and projects. 

Nonetheless, measuring the sustainable impact of companies is not an easy feat. First, data collection today mostly relies on self-reporting questionnaires, which exposes the process to subjectivity. Secondly, the manual processing of data significantly reduces the amount of data that can be managed at once. The result is an incomplete and biased picture of the real-world impact of companies and industries. 

Frameworks by the regulators 

Over the past years, there has been a push on the side of regulators and consumers for more accurate and robust disclosure. Collectively demanding more granular insights and requirements into sustainability on the part of companies. As a result, the amount of non-financial data published by companies is expected to grow massively over the coming decades.  

As part of its Sustainable Finance Action Plan, the EU has set a green classification that translates how economic activities contribute to the EU’s climate and environmental objectives.  

This initiative is coupled with the Corporate Sustainability Reporting Directive which requires companies to disclose additional non-financial statements concerning environmental, societal, and governmental matters.

Similarly, in the United States the SEC, the securities laws enforcement agent, recently issued a proposal named the ‘Environment, Social and Governance Disclosure for Investment Advisers and Investment Companies. The goal is to standardize how investment funds disclose their sustainability credentials. Eventually, to gain a better picture of their real-world impact.

The impact on the world 

Recent talks about the evolution of sustainability reporting have defined the concept of ‘double materiality’. It mandates that companies should report both on sustainability matters in terms of business value (on the company), to the environment, and to people. This information supports companies in the development of sustainable management strategies around issues impacting various stakeholders. Not just the company and its shareholders.  

On the investor side, these insights offer information about the impact of economic activity on the real world. Impact measurement is seen from an output perspective. It addresses the effects of products and services on solving environmental or social challenges. 

Measuring the quantity or the quality of a contributing company starts with a theory of change. This theory outlines the change that is expected, as well as the economic activities and outputs that are part of the solution or the problem.  

From this theory of change, a selection of indicators is defined to measure each output. When assessing the development of clean energy, an output may refer to the amount of  GWh produced from renewable energy sources. Or the amount of CO2 emissions (in tons) has been avoided by replacing thermal transportation with low carbon technology. 

The pertinent analysis relies on the ability to manage data in different formats, from multiple sources.

Disrupt sustainability data management 

Collecting, sorting, cleaning, and processing these gigantic amounts of data in real-time, requires systems organized as databases. Even a battery of analysts could only partially account for the computing power required. The growing volume of data generated every day and its analysis lay the foundation for improved investments and impact measurement.  

Big data provides access to detailed and accurate information on the real impact of companies and/or projects financed. For example, the positive or negative development of activities can be assessed on major challenges such as deforestation or soil pollution, the generation of renewable energy, or the reduction of greenhouse gas emissions. 

The pertinent analysis relies on the ability to manage data in different formats, from multiple sources. Company reports or NGO reports, satellite data, or internet traffic; all data used must be attributable to the companies concerned. Once thousands of data points are organized, sophisticated analysis and research into a company’s real-world impact can begin. 

Impact investment firms assessing a company’s impact must be prepared to absorb this ever-growing flow of metadata and equip themselves with adequate technology to perform quality research. Data collection, cleaning, and analysis are crucial steps in the investment process, achieving a double objective; performance and real-world impact. 

About the author

Passionate about sustainable investing, with over 20 years of experience in the field, Natacha is a founding partner and member of the executive committee of Asteria IM, a Geneva-based impact asset manager. As Head of Research, she defines the impact investment strategy for all asset classes. She also oversees the research and impact measurement activities. In particular, she is the Chair of the Impact Committee.
Natacha is a founding member of Sustainable Finance Geneva and holds a master’s degree in international relations from the Graduate Institute of International and Development Studies in Geneva.

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