Our impact journey: progress made and growth ahead

We reflect on our first year as an Impact Principles signatory

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Andy Howard
Global Head of Sustainable Investment
Maria Teresa Zappia
Head of Sustainability and Impact, Schroders Capital

Impact investing has a long history in private markets. We believe there is much we can learn from the impact measurement and management frameworks that have been developed in the private space to bring impact investing into the mainstream. We have developed the Schroders framework by leveraging best practice industry standards and impact management frameworks, such as the Operating Principles for Impact Management (the Impact Principles). The framework also combines the experience and expertise of BlueOrchard, a leading impact investor with over 20 years of experience in impact investing, with the breadth of Schroders’ long history of fundamental investing across asset classes.   

Through this framework, we aim to bring the rigour and robustness of a pure play impact manager into impact investment strategies across the firm. We apply the framework across asset classes – including listed equity, private equity, listed debt, private debt, infrastructure, real estate, fund of funds and multi-private asset solutions.

Schroders became a signatory to the Impact Principles in September 2022, following in the steps of BlueOrchard, which was among the first signatories when the Impact Principles were launched back in 2019. The publication of our Disclosure Statement and associated independent verification marks the first-year anniversary of being a signatory to the Impact Principles. A year on from becoming a signatory to the Impact Principles, we are delighted that an external assessment of the framework that we have developed has been recognised as “Leading” by the independent consultant Bluemark. 

Following this year of growth and innovation, we wanted to take the opportunity to put some reflections down on paper. Below, we outline everything we have learnt in the journey of pursuing our ambition to scaling impact with integrity across asset classes.

1.The Impact Principles and associated verification and disclosure requirements provide much needed clarity and transparency to the market.

The growth of impact investing

The impact investing market is expanding rapidly, with increasing attention from large, diversified asset managers. This growth is welcome due to the potential for channelling capital towards solving some of the challenges set out by the UN Sustainable Development Goals (SDGs). These challenges require significantly more capital than is currently focused on tackling them. Up to $5-7 trillion of annual investment is needed to tackle the SDGs1, significantly more than the entire $1.1 trillion pool of impact investments according to the Global Impact Investing Network2.

Solutions to these challenges will come from across the investment, corporate and public landscape, but the need for more, conscious investment in businesses and activities that help tackle the world’s biggest challenges is clear. Impact investing will need to spread beyond private market niches and we’re already seeing strong growth across the investment landscape.

Establishing impact integrity

This rapid growth presents opportunities and challenges. As new players that do not have a history or depth of expertise in impact enter the market, there is a real divergence in the level of rigour and robustness that different managers apply, and a growing risk of impact- or SDG-washing. 

That being said, there are a number of leading industry standards that bring much needed clarity and transparency on what best impact practice looks like. In our view, the most important of these is the Impact Principles, to which Schroders is a signatory.

The Impact Principles comprise nine key principles to ensure that impact is rigorously embedded across the entire fund lifecycle. The ninth pillar centres on disclosure and independent verification, bringing much needed transparency to the market.

In the absence of regulatory requirements and eligibility criteria around impact (discussed in greater detail in point 5), the Impact Principles provide clear standards on what good impact practice looks like. They also provide a way for investors to differentiate managers that have robust processes and frameworks in place from those that are simply a “check-the-box” exercise. Impact funds and managers that have aligned their practices to the Impact Principles and that have had these independently vetted have a stamp of authenticity of impact.

Overall, the Impact Principles have introduced several key features to the impact investing asset class:

  • A guiding framework to embed impact in the investment process from origination to exit;
  • a discipline in terms of compulsory annual disclosure of the alignment to the Principles (i.e. a disclosure statement published and available to all stakeholders); and
  • a long-awaited obligation to have impact investing processes and tools assessed and rated by external independent specialized providers (e.g. an external audit).

2. It is possible to bring the rigour and depth of private market impact investing into the listed market. This is a necessary evolution for the industry, but it requires significant resource and expertise to do it with integrity.

Our mission is simple: to scale impact with integrity for our clients and investee companies and assets. We believe that we can do this by developing robust impact frameworks and practices that work across asset classes, including listed markets.

A cross-asset class approach

The market value of public equities and bonds is ~$229 trillion, compared with assets under management  of ~$9.85 trillion in private assets.Scaling impact, therefore, requires a cross-asset class approach. Moreover, as investors and active managers across public and private markets, we believe we have an important role to play in providing capital and non-financial support to assets and companies across their maturity curve, which includes scaling as a public company. We are committed to driving progress across these different asset classes while partnering closely with the companies we invest in.

Leveraging the expertise of a pure play impact investing leader

Having said that, embedding impact within the investment process and aligning with the Impact Principles is no small task. Making this work across asset classes presents additional complexities. Our investment in BlueOrchard – a leading impact investment manager with a track record of 20+ years in impact investing has been critical to the strides we have made to establishing a market leading impact practice. While the target markets and geographies of BlueOrchard – focused on inclusion and climate in emerging and frontier markets – may be quite distinct from the markets that Schroders and Schroders Capital invest in, the core principles of impact management and measurement are remarkably similar.

Our proprietary impact toolkit that enables us to measure and monitor impact progress across the investment lifecycle (from impact initiation, annual monitoring, exit and even beyond) for every investee leverages the insights and learnings embedded in BlueOrchard's B.ImpactTM framework. Our independent impact governance structures that review every impact transaction include BlueOrchard representatives, and Schroders’ group-wide Global Head of Impact Maria Teresa Zappia has been the Chief Impact Officer of BlueOrchard for 10 years. 

Having this impact practice competence hub has enabled us to develop and scale a rigorous impact framework that is applicable across our product offerings. This is the result of Schroders fund management and investors teams’ expertise across sectors and asset classes combined with BlueOrchard’s 20 years of impact expertise and the associated tools and methodologies that come with it.

3. There are unique considerations for impact across asset classes

Having developed and rolled out a cross-asset class impact framework that is applicable across listed equities, listed debt, private equity, private debt, infrastructure and real estate, a number of similarities and differences stand out.

Our proprietary impact scorecard assesses our investees and transactions across five dimensions of impact, in line with the Impact Frontiers’ framework




What outcome the enterprise is contributing to, whether it is positive or negative, and how important the outcome is to stakeholders


How many stakeholders experienced the outcome, what degree of change they experienced, and how long they experienced the outcome for


Which stakeholders are experiencing the outcome and how underserved they are in relation to the outcome


An enterprise’s and/or investor’s efforts resulted in outcomes that were likely better than what would have occurred otherwise


The likelihood that impact will be different than expected.

There is considerable similarity in the way we think about impact across asset classes for a number of these dimensions. For example, the impact intents (the ‘what’ dimension) that our impact-driven strategies target are consistent across asset classes, while certain products may focus on particular aspects. Similarly, we measure and monitor impact KPIs (the ‘how much’ dimension) across all our strategies, though some may be more relevant to certain asset classes or strategies than others.

That said, there are some notable differences. One of these is the spatial dimension of impact (the ‘who’ dimension), which is much more location-specific for a real estate investment compared to a listed company operating across geographies. For example, for a real estate investment, we use postcode level measures of deprivation to assess the need, whereas for an international listed company, we are more reliant on country-level indicators of need.

Another notable difference is within the contribution dimension, where scope for financial and non-financial contribution is distinct across asset classes. Financial contributions may involve providing capital quicker than other investors, with greater flexibility, or taking on greater risk than other investors would be willing to tolerate.

On the non-financial side, this might involve implementing impact targets into investment agreements, or engaging with investees to improve impact outcomes. In listed secondary markets, it is more challenging to provide direct financial contribution, with the potential exceptions of IPOs or follow-on issuances. Levels of influence for non-financial contribution will also likely differ across equity and debt providers.

Lastly the scope to influence impact at exit is considerably different across asset classes – from a direct private equity investment where there is some control over the timing and buyer, through to a listed debt instrument that is maturing, where the timing is pre-determined.

It is therefore critical to design an impact framework that is flexible enough to capture these asset class-specific nuances whilst maintaining consistency in the way that impact is assessed, contributed and measured.

4. Impact must be embedded within investment teams and investment processes to be truly scalable

The input of BlueOrchard has been vital in developing a rigorous framework and impact toolkit, but it has been the close collaboration with the fund managers and investment teams that has enabled us to roll out the impact practice at scale. Impact must be truly embedded into the investment process, and this means it must be owned by the investment desks and teams themselves. Our impact practice has been shaped first and foremost by all the fund managers and analysts working on impact across the firm. This investor-led approach has been and is critical in ensuring that impact is truly embedded into investment decisions across the firm.

Still, checks and balances have been critical features of ensuring rigour and objectivity in our impact management implementation. Our independent governance structures - impact incubator, impact assessment group and impact portfolio reviews, among others - ensure that our impact framework and principles are consistently applied and that we maintain the same standards across products, teams and asset classes. At the end of the day, it is the implementation that is really how we shape the impact that we can have as active asset managers.

5. The industry needs to agree on a clear definition of what impact is and what it is not

The absence of a widely accepted definition of impact has created significant confusion in the market around what is and is not impact. One example of this confusion for those familiar with the EU's Sustainable Finance Disclosure Regulation (SFDR) is the misinterpretation of that piece of regulation and the wrong assumption that Article 9 and impact products are synonymous with one another. 

Article 9 products must meet three criteria: they must only invest in 'Sustainable Investments' (excluding neutral assets such as cash or hedging instruments); they must Do No Significant Harm, which includes exclusion screens and assessment and monitoring of Principle Adverse Indicators (PAIs); and they must pass a Good Governance Test. The latter two are heavily focused on avoiding harm while the first is more associated with positive outcomes.

Moreover, how a ‘Sustainable Investment’ is defined is deliberately left to the discretion of investment managers and may bear little resemblance to impact investing standards or norms. Managers applying a weaker definition of a ‘Sustainable Investment’, such as a minimum third party ESG rating for example, should not be confused with impact investors.

Impact investing, on the other hand, sets clear standards on what can be considered an impact investment.  

There are three defining features of impact investing that set it apart from broader sustainability investing.

  1. Intent: Impact funds have explicit impact objectives and goals, that are articulated in a Theory of Change. This sets out specific inputs and actions that the fund will take, and the outputs that will be measured.
  2. Contribution: Impact investing is not just about identifying impactful investment opportunities but also about providing financial and non-financial support as an investor to deepen the impact of portfolio companies or assets.
  3. Measurement: Impact funds collect and monitor impact key performance indicators or KPIs that quantify the magnitude of impact that an investee is delivering on and take steps to rigorously measure and track this over time.

Assuming that all Article 9 products meet all three impact criteria is therefore not accurate. Greater clarity is needed to prevent these misconceptions in the market and guide investors and practitioners in setting eligibility criteria for impact investing strategies.

6. Engagement for impact is not the same as a sustainability engagement

We believe that a differentiated approach to engagement both in terms of breath and depth is needed for impact strategies – one that touches on all three dimensions of impact. Engagement should be closely tied to the core intent and impact objectives of the strategy. It should seek to improve measurement of impact where relevant, and it should be focused on contributing to the core impact outcomes of portfolio companies and assets.

While impact funds may also engage to improve sustainability practices, and thus reduce risk and protect value creation, we see this as secondary to the primary impact objective. Certainly, this means a considerably larger effort for listed markets and a much closer collaboration with the listed companies.

7. There’s a misconception in the market about impact and financial returns. Impact is in fact a driver of financial performance

A final and critical misconception in the market is about the relationship between impact and financial returns, with many wrongly assuming that impact investing is associated with concessionary returns. While there may be investors in the impact ecosystem that are willing to tolerate below-market returns, such as Development Finance Institutions or certain pure play impact managers that may earmark a subset of their investments with a lower return target, the space that Schroders operates in is firmly driven by targeting above market returns.

Indeed, we see impact as a driver of financial return. Impact-driven funds seek to invest in companies and assets where social and environmental goals are central to the business model, and where impact is a key driver of financial performance. By investing in companies and assets where impact and financial alpha are interlinked, we believe that outperforming on impact should also result in outperformance from a financial perspective.


Andy Howard
Global Head of Sustainable Investment
Maria Teresa Zappia
Head of Sustainability and Impact, Schroders Capital


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