Beyond 10%

In addition to the IFB target of 10% of AUM financed in Impact Investing by 2030, IFB wants to ensure there is enough market potential to follow the first 10%. IFB is now defining this additional ambition together with several members and experts.

To define more clearly the potential and the targets, IFB composed a working group to exchange upon:

• The classification of ‘responsible, sustainable and impact investing’,
• Strategies on how IFB members can develop initiatives to evolve from sustainable financing to impact financing and
• -An ambitious but feasible goal on the portion of AUM which should be dedicated to Sustainable Finance over time in order to properly address the SDG challenges.

For these clarifications, IFB prefers to combine a theoretical with a pragmatic approach. Hence, the participants of this working group are composed of a few IFB members with different positions in the impact investing scene, and a few impact experts.

Download the taxonomy document. 

In order to address the first challenge, the clarification of the taxonomy ‘responsible, sustainable and impact investing’, IFB prepared a grid of the characteristics of the different approaches. This grid is elaborated based on existing theoretical classifications (see SFDR, Financial Conduct Authority UK), used definitions of different networks (UN PRI, Eurosif, Impact Investing Institute, Impact Europe, SDG’s) and developed practices of IFB members (DPAM, Ethias, Bio-invest, …). The different frameworks are presented in the background document, that was sent to all participants before the meeting. These frameworks gave input to the summary grid, that was presented in a separate file ‘the framework’.

The following observations were made during the discussion:

• The framework is recognisable and there are clear links with the framework of the regulator to disclose financial products. However the disclosure framework differs from the Mifid regulation put forward to protect clients/investors and based on 3 parameters (risk, return, taxonomy). More explanation at this level is needed. Furthermore the interpretation of the same disclosure framework is different in neighbouring countries.
• Due to lack of clarity and fear for greenwashing, most investors become ‘overcautious’ and declare their sustainable investments often as less ambitious than it is in practice.
• The distinction between ‘article 9’ and ‘impact’ is difficult to make as both are linked to different frameworks (SFDR, GIIN definition of impact investing). While SFDR is regulated, impact investing is not. In general, article 9 is mainly considered as part of ‘sustainable investing’.
• Additionality is crucial (SFDR will also be adapted in that sense), but how do/can you measure it? For instance, how can you measure the additional impact of exclusion? How can additionality be measured in an impact fund/an indirect investment?
• For Triodos the biggest win is situated in reducing negative or putting positive impact forward in the investment. The additional impact of the investor is considered as minimal. Therefore, only the outcomes of the investment are reported, not the additional impact of Triodos itself.
• Additionality of an investment can be considered at the level of the investor and the investee. At the level of the investor it can be created on the financial dimension (for example: concessionary capital) and non-financial (for example: Technical Assistance) dimension, while at the level of investee, additionality will be considered in the way an underserved populations is addressed as the target group, making a product or service accessible and affordable.
• How to consider the criteria of intentionality, additionality and measureability in funds, private equity and bonds? The purpose is to include all products in the framework.
• How broad ‘intentionality’ can be interpreted? Sustainable investing has the implicit intention to contribute to a better world? Transformative finance put forward a long term effect? For impact investing precise and focused questions AND answers are important. Preference is given to stick to the 3 proposed categories of the grid and to not include new terms in order to avoid diffusion. At micro-level a TOC is often helpful to indicate your intentionality, at macro level this aspect becomes more complicated.
• Another concern is the distance to the client. How can clients be convinced? Helpful tools/themes and clarity is in this respect helpful.
• Besides impact investing, sustainable investing is also important.

Recommendations towards the framework:

• Do not use the term ‘impact’ in the categories ‘responsible and sustainable investing’ to avoid confusion.
• Indicate the critical aspects and make a clear distinction with ‘nice to haves’. F.e double materiality, focus on outcomes, TOC, … . A pragmatic 80% correctness is put forward.
• Make clear which aspects are adding up.