KBI GLOBAL INVESTORS - IMPACT MAPPING TO REVENUE IS THE FUTURE
KBI GLOBAL INVESTORS SUCCESSFULLY MAPS REVENUE IMPACT OF CONSTITUENT PORTFOLIO HOLDINGS TO UN SUSTAINABLE DEVELOPMENT GOALS
“Mapping to revenue is the future”
Introduced in September 2015, the UN Sustainable Development Goals (‘SDGs’) set 17 goals and sub targets (most with a 2030 deadline) for the eradication of poverty and hunger, the protection of the environment, the provision of clean water and sanitation, and prosperity for all. KBI Global Investors’ (‘KBIGI’) aligned its investment strategies with the SDGs from their inception, but the specialist institutional asset management boutique has now gone a stage further; the Dublin-based firm has quantified the revenue impact of constituent holdings in each of its Natural Resource strategies to these goals. The breakthrough follows a body of work undertaken over the course of the last six months, and is timely, with growing numbers of investors looking to achieve impact through public equities.
Investing in ‘Solutions Providers’ to deliver Impact
‘Impact investing’ refers to investments made with the intention of generating a measurable, beneficial, social or environmental impact alongside a financial return. KBIGI’s Natural Resource strategies invest in ‘solutions providers’ – companies whose products and services seek to address the global shortages of clean and safe food, water and energy – and it is therefore clear that the firm’s Natural Resource strategies are ‘Impact’ investing strategies.
However, these beneficial impacts are very often hard to measure. It is, for example, clear that a company that is improving food safety is generating a beneficial social impact – preventing death and illness – but how material is that impact relative to the size of an investment in that firm, and/or to the size of the total investment portfolio? This is an issue that has been troubling investors for some time.
The impact on communities, the environment and industries resulting from the work being undertaken is high, but the range of solutions being delivered – even within a single company – means measuring impact at the portfolio level has been difficult. Companies’ own impact reporting has often been lacking, and where it has existed, it has been nigh impossible to compare with that of other firms. What is more, the data available is often oriented towards output rather than outcome or impact. KBIGI has therefore had to rely on anecdotal evidence of impact, highlighting particular achievements. By way of example, we have been able to say that:
- Ecolab’s hand hygiene solutions help to wash 31 billion hands each year1
- Pure Technologies’ leak detection helped save 440 billion litres by identifying 5,000+ leaks over the last decade2
- Jain Irrigation’s drip irrigation and sprinklers have saved 49 trillion litres of water3
- China Everbright International reduced chemical oxygen demand (a measure of contamination) in wastewater by more than 2 million tonnes from 2005 20164
Now KBI Global Investors has become one of but a small band of managers to measure the Impact of its Natural Resource portfolios. The firm has done this by calculating the percentage of each investment portfolio’s revenue that is aligned with the SDGs. KBIGI has taken the total amount of revenue earned by the companies in their portfolios, and then allocated that revenue to various business activities.
Then for each business activity, the firm decides whether that activity has a positive, neutral or negative impact in achieving the United Nations’ SDGs. On a weighted basis, KBIGI calculate the percentage of any portfolio’s revenue (sales) which is positively or negatively contributing to the achievement of those goals. Taking the firm’s Water Strategy as an example, one of its most popular strategies, the work has shown that:
- 68% of the portfolio’s business activities (measured by revenues) contribute directly to the achievement of the SDGs
- 7 of the 17 SDGs are directly benefiting from the portfolio’s investments
- Goals 2 (Zero Hunger), 6 (Clean Water and Sanitation), 7 (Clean Energy), 9 (Industry, Innovation and Infrastructure) and 11 (Sustainable Cities and Communities) are the most directly relevant SDGs
Measuring the revenue impact of portfolios has been difficult
The KBI Global Investors Water Strategy invests in companies which provide solutions to global water problems – namely increasing supply and access, reducing demand and waste, improving and assuring quality, and building and repairing infrastructure. The firm has always been committed to Responsible Investing, beginning with the use of basic exclusionary criteria in the 1990s and moving to full ESG integration today, as Head of Business Development & Client Services, Geoff Blake explains:
“We have come a long way from those early days, running exclusionary screens on our portfolios. Today we fully integrate ESG scores into our investment process and enjoy active engagement with companies – and we have now moved to direct measurement and reporting on the impact of our holdings at a company level by revenue. The thought leadership on avenues of impact brought about by the significant body of work and groundswell of support for SDGs helps advance the quantification of impact from the previous situation of interesting, yet disjointed company-level anecdotes to one which can be more broadly applied at the portfolio level. It is clear investing in water creates significant impact, and equity owners in businesses providing solutions to global water problems play a key role.”
Eoin Fahy, Head of Responsible Investing adds:
“We are still diving into the numbers and evolving our methodology, but our work may well provide a methodology for companies to report their own impact as well. We have already seen a couple of consulting engineers providing anecdotes for each of the 17 SDGs and a self-assessment of their alignment across the SDGs. We like the transparency the new approach brings and will most certainly be reporting to clients in this way going forward – and our work may well prompt the ‘green washers’, those trading on a generic alignment of their strategies with the SDGs, to revisit their approach. Mapping to revenue is the future.”
To learn more, a short video can be accessed at: https://vimeo.com/261111712
Journalists seeking further information should contact:
Phoenix Financial PR
+44 7799 767 468
References: 1. Ecolab, 2. Pure Technologies, 3. Jain Irrigation, 4. China Everbright.
UN Sustainable Development Goals (SDGs)
KBI Global Investors supports the SDGs. The use of the image is for illustrative purposes only and is not intended to promote KBIGI products or services.
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