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Staying Focused On What Impact Investing Can Do - Barclays

Damian Payiatakis

9 August 2018

The following article on impact investment is from Damian Payiatakis, director of impact investing at . As readers know, this field is producing a great deal of commentary. Among the questions that arise is are there sufficient opportunities for impact investing so that if there is a surge of capital, there won't be so-called "mission drift" if demand for investments outstrips available capacity. Another issue might be analysing performance. A person well placed to consider these issues is Payiatakis, who has written about such topics. This article, written for this publication, is an important contribution to debate. As ever, the editors of this news organisation do not necessarily share all views of contributors and invite responses. Email

The impact investing market is growing, with recent figures from the Global Impact Investing Network estimating the market to be at least $228 billion (1). With impact gaining traction amongst wealth, asset, and investment managers, what constitutes high-quality investments is a critical challenge for the industry and these new entrants.

Unsurprisingly, both growing client demand (recent research we have conducted with HNWI and family offices shows their assets allocated to impact investing have almost doubled from 17 per cent to 31 per cent over the past five years (2) and the potential for positive headlines are driving traditional players to enter the field. Encouraging as this is to help the practice to scale; it evokes a slight feeling of trepidation in many early innovators.

For them, the participation of traditional financial services players creates a risk that these later entrants’ actions will not align with the earnest attempts to account for, and influence, how we invest capital on behalf of clients for both the benefit of financial returns and of people and planet.  Toniic, one of the largest global networks of impact investors which we work with, was initially set up because the traditional banking sector could not appropriately meet the demand of early adopters.

Given the growing cacophony of product launches and marketing efforts, as well as frequent misunderstandings and misrepresentations of what impact investing is, unfortunately that risk feels more prevalent. 

But in an attempt to preserve the fundamental intention of impact investing we should not accept calls to set narrow boundaries that restrict the growth and evolution of this innovative and inherently important practice.

Instead we need to be more inclusive, and simultaneously more transparent. We need to take a wider perspective that sees impact as an investment practice rather than label for investment products.

For those who want to offer investments or help their clients to invest in this way, what does this mean more pragmatically? How do we identify and drive high-quality impact investments in a market that is still nascent and evolving?

Barclays has faced this challenge in establishing our impact investing proposition and seeking to integrate impact throughout how we support clients. As a result, we’ve had to find credible and authentic investments that have the potential to deliver both in financial and impact terms.

Given this effort, we have three observations on how new entrants, and the original innovators, can find a joint path to help impact investing successfully navigate its next phase of growth.

Ignore labels, articulate the investment approach
As the range of impact products continues to grow, with no consistent labelling or terminology, it is an issue to know what to expect. One firm’s “sustainable” is another’s “impact” is another’s “ethical” is another’s “long term value creation.”

For example, consider three options we’ve seen for a “Low Carbon” investment strategy. One selects, the company in each industry with the lowest pollution levels to create a portfolio with a lower overall footprint relative to its benchmark. Another seeks investments that, through use of proceeds, will lower the total atmospheric carbon levels. Finally, one invests in companies which, by fortunate industry circumstances, have low carbon footprints. All purport to be low carbon, but will have different holdings, performance and outcomes for investors.

Funds and managers need to be more explicit and transparent about how they have incorporated impact into their end-to-end investment practice. And those assessing strategies need to delve beneath the surface labels to see how it is used and how deeply ingrained it is.

Last year, to launch our Multi-Impact Growth Fund, a UCITS fund of listed equity and bond impact funds, we developed a new due diligence process to assess and select managers with the same conviction about impact outcomes as their potential for financial returns.

Our impact framework starts with testing the intentions driving the strategy to understand the real level of the manager’s commitment. Next, we examine the investment process - foremost, how impact considerations are integrated for both the financial and non-financial outcomes. We appraise the organisation – e.g. its capabilities, resources, accountabilities – to determine whether it is congruent to deliver its impact strategy. Finally, is the critical question of impact evaluation – e.g. measurement, monitoring and reporting of impact outcomes, and how these insights are used to inform investment decision-making.

Using this we looked beneath the labels to assess how, and how well, potential funds for our platform would incorporate and generate impact. We can see that higher quality investments are clear about how they are actually using impact to drive investment process rather than rely on a label to suggest its use.

Recognise multiple approaches to impact investing 
Impact investing is frequently viewed as a homogenous approach, or the final option along a spectrum of investing.

However, we would suggest this thinking misses the true opportunity of impact investing. If the founding premise of the field is that “every investment has an impact,” then we should incorporate considerations of impact into every investment we make.

As such, impact investing isn’t confined to a single asset class or liquidity level. Nor does it exist only to serve one particular cause, type of organisation, or only to support the UN’s Sustainable Development Goals.

This premise also highlights a false juxtaposition of “ESG investing” with impact investing, as ESG factors provide an important, if partial, insight about the impact an investment could make. As well, it shows the difference from ethical investing, which applies a pre-determined set of values or beliefs to decision-making rather than on the basis of investment rationale.

Using this broader perspective, we have categorised three distinctive approaches used by fund managers for our product platform. Some investors solely consider ESG risks and opportunities when assessing investments to support better investment decision-making. Others look more broadly at social and⁄ or environmental trends for investment opportunities. And some start with a specific societal challenge and looks for investments that address it. (The latter two approaches ideally consider ESG factors as well.)

All three approaches consider impact in their investment process, but do so differently. As a result they will vary on impact dimensions such as the scale and depth of impact. However, by articulating these aspects managers and investors can identify and set expectations for the impact they are pursuing and enable appropriate like-for-like comparisons of investments.

Commit to the journey not the headline
Many new entrants have had tendency to enter the market with a widely announced new investment strategy; though promotion of a previously unloved strategy has also been a tactic.

They should be applauded for joining the field as they frequently provide exciting innovations and new perspectives. However, the marketing of, and publicity around, new product launches can overtake the substance of the investment process and investments being made. As well, having one or two impact products while the rest of a firm’s investments remain blissfully ignorant of the impact they are generating, will soon be incongruent and unacceptable for investors.

For Barclays, we are reviewing the end-to-end journey of clients who want their wealth to have an impact. For example, leveraging our behavioural finance team, we’re researching motivations and preferences on impact. In addition to impact due diligence for products, we’re evaluating how impact can influence asset allocation or portfolio construction. We’re educating our advisors and supporting their discussions with clients. Importantly, we know this will be an ongoing process as the field develops.

To be effective at impact investing requires consideration of impact throughout the full investment process. Early innovators have spent many years developing and refining their practices. To be credible, newer entrants will need to make committed effort and spending to integrate impact.

Today most investing continues unaware or agnostic about what effect it has on the world. But investors increasingly want to know and influence the impact being made by their investing.

Larger, traditional players responding to this demand are adding momentum to the field’s growth. While the standards and norms are still being established, we have a duty to be more transparent and explicit our process, approaches, and integration of impact.

This will mitigate risks of impact- or green-washing damaging the field; as well, our own reputations and any trust gained back from clients, media, and society. It will also prepare the industry for the eventual failures of some investments; as underperformance (on either financial or impact terms) will be attributed to the particular rather than the practice.

In the end, though we should also have some perspective; with just over ten years since its christening, impact investing is still evolving. It needs time to further mature.

As a parallel, prior becoming a fundamental component of modern portfolio theory, “risk” still existed within investing; it took decades until it became part of accepted, and expected, investment practice.

Adding impact into how we invest has profound implications to this theory and our investment process – with the potential to make better investment decisions to both protect and grow assets and make a positive contribution to our world.


1, Global Impact Investing Network, Annual Impact Investor Survey 2018. Respondents collectively manage $228.1bn, which serves as the latest estimate for the ‘floor’ for the size of the impact investing market

2, Financial Times Investing for Global Impact 2018