IN FOCUS6-8 min read

How to scale impact with integrity: our experience in delivering impact in public equity investing

The size of the public equity market means it has an important role to play delivering impact at scale, but investors need to follow some core principles to ensure impact is really being achieved. We explain how this works.

photo of cardboard for recycling


Catherine Macaulay
Impact Investment Lead
Maria Teresa Zappia
Head of Sustainability and Impact at Schroders Capital

The global impact investment market has grown in size and sophistication in recent years. It is estimated at over a trillion dollars by the latest Global Impact Investing Network (GIIN)1 figures, with notable growth from asset classes that are much newer to impact investing, such as listed equities.

The need to scale impact

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) while delivering financial returns. 

The scale of the challenges facing the world requires significantly more capital than is currently focused on tackling them. Up to $5-7 trillion of annual investment is needed to tackle the UN’s SDGs2, significantly more than the entire $1.1 trillion pool of impact investments according to the GIIN1.

Scaling impact, therefore, requires a cross-asset class approach that incorporates listed equities.

Caution needed

The rapid growth of impact, however, presents risks to market integrity. 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-washing. There is an urgent need for clarity within the industry on what constitutes robust impact practices within listed equities, and what does not.

We believe that the same leading industry standards such as the Operating Principles for Impact Management (Impact Principles), the Impact Frontiers, and IRIS+ that have been critical in establishing impact integrity in private markets can and should be equally applied to listed equities. Incoming regulations such as the planned SDR sustainable investment classification rules in the UK, could help establish more consistency, if based on robust principles such as the Impact Principles. 

We are not willing to lower the bar in listed markets. Below, we explore how we bring the integrity and robustness of traditional impact investing into the listed equity space.

Graphic explaining the three core characteristics of impact investing

A rigorous approach and a robust framework

Schroders’ impact investing offering spans asset classes and is grounded in best-practice impact management and measurement to ensure consistent and rigorous implementation across the board while targeting above market rate returns alongside solving societal challenges.

With a core ambition to scale impact with integrity, we have built our offering on the expertise of BlueOrchard, a leading impact investor with over 20 years of experience in impact across private and listed assets. Our framework and offering bring the rigour of the pure play impact manager into Schroders’ Impact Driven range.

The Impact Driven range uses industry best practice, such as the Operating Principles for Impact Management (Impact Principles), Impact Frontiers, and IRIS+. We are delighted to have been recognised as a leader in this field through the external independent verification of our alignment with the Impact Principles in August 2023.

What does impact investing mean in practice?

We invest in companies whose products and services make a material contribution to positive social or environmental impact: a significant share of a company’s business model must be in impactful activities that we can tie to at least one of the SDG targets. This means investing in businesses where impact is core to the business model and a key driver of the financial performance of a company.

If the impactful part of the business is new and fast growing, we model out the growth trajectory to ensure that it will become a meaningful part of their business over the medium-term.

Case study: impact in emerging market equities

Emerging markets often face greater environmental and social challenges than developed markets. At the same time, many emerging market companies are at a relatively early stage in their impact and ESG journey and therefore the opportunity for us as an asset manager to contribute and have an impact is significant.

AT Renew stands for ‘All Things Renew’ and its mission is to give a second life to all idle goods. It operates a platform in China to facilitate recycling and trade-in services of pre-owned consumer electronics, distributing the devices to prolong their lifecycle. The company has a positive impact through its ability to facilitate the re-commercialisation of electronic products from collection through to resale. In 2022, 32 million products were recycled and traded through its platform.

We have engaged with the company numerous times across 2022 and 2023. In Q1 2022 we encouraged the company to improve measurement and disclosure of its impact, including estimated greenhouse gas emission reductions enabled through the use of pre-owed electronic devices. In its next sustainability report, the company implemented this feedback and included an estimated reduction of 464,000 metric tons of carbon emissions through the reuse of pre-owned mobile phones in FY2021. It also partners with qualified organisations to responsibly dispose of e-waste of 270,000 devices – reducing 43.2 metric tons of e-waste in 2022.

The company is a market leader in a fast-growing market, and is seeing improvements in its profit margins in combination with its growing impact.

Impact goes beyond operational improvements or sustainability performance, and it targets what a company is actually providing to the world, in addition to how it provides it. Impact does not come at the expense of strong sustainability performance, but in addition to it, as the US case study below shows.

Case study: sustainability and impact in US smaller companies

The broad US smaller companies’ investment universe includes nimble and dynamic businesses, many of which are underappreciated yet provide key components or services that directly address the SDGs or support large players.

Graphic Packaging is a small cap company that enables large consumer packaged goods companies to meet their sustainability goals. It has pioneered many paper-based alternatives to plastic consumer packaged goods, including the first paper-fastener alternative to plastic rings and the first microwavable paper bowl for frozen food. The company’s disciplined capital allocation has enabled them to invest in forward thinking production and state of the art facilities. In 2021, Graphic Packaging produced nearly 3.5 million metric tons of paperboard, 26% of which was recycled paperboard.

We engaged with Graphic Packaging to discuss how the company thinks about the shift from plastic to paper packaging, its efforts to bringing new product innovations to market, and its initiatives towards reducing its carbon footprint and improving operational efficiency.

Graphic Packaging is investing significant capital to build new facilities that enable increased recycled content and reduced water usage. We also discussed ways to improve energy efficiency at existing plants. The company’s resulting initiatives include undergoing energy audits at all of its mills, installing smart unit management systems to optimise boiler usage and maximising uptime, and conducting end-of-life assessments for every unit that gets replaced.

It is also in the process of setting SBTi-verified targets for Scope 1, 2 and 3 emissions reductions. As part of this, we discussed the balance between aspirational target setting and ensuring a clear roadmap to achievement.

We look forward to continued engagement with Graphic Packaging on the development of SBTi emissions targets, their implementation, and broader product innovation to drive positive impact.

What are the challenges for impact investing in listed equities?

Despite the opportunities that impact investing in listed equities presents, it is important to call out some challenges, as identified by the GIIN’s Guidance for Listed equities – which Schroders helped to shape.

The challenge

Schroders’ approach

Weaker investor-investee relationship given the presence of a large number of shareholders, and the rare provision of new capital to companies by investors, has led some to question the additionality of investor contribution in listed equities – i.e. is the investor really bringing about positive change or would the change have happened anyway?

We believe the focus should be on the depth of relationship with the investee and the uniqueness of what we, Schroders, can bring to the table. This is either through the way in which we provide capital or the non-financial support that we can bring to our investees. The multi-decade relationships of our portfolio managers with businesses are vital for effective impact engagements that drive the core impact objectives of the funds, and our scale and reputation ensures that our engagement carries weight. 

Diversification and benchmark alignment

Listed equity managers may face pressures for diversification and benchmark alignment, limiting their abilities to target specific impact themes or goals, or possibly placing pressure on them to invest in less impactful companies that constitute a large share of the benchmark.

All of our Impact Driven funds have clear theories of change that set out explicit impact goals and targets, and we are not afraid of having a high active share (i.e. divergence from benchmark) to pursue these core impact objectives; indeed it is often necessary.

Our impact governance process, where every company is discussed and approved by an independent Impact Assessment Group (IAG), provides an additional layer of protection against mission drift.

Liquidity and fluidity

Listed equity markets are (generally) liquid, where shares can be easily purchased and sold. This can make it less conducive to develop the long-term relationships with companies that are needed for the deep impact engagement that is required by impact funds.

As a long-term active manager, we prioritise the provision of patient capital with low turnover in our Impact Driven funds.

Complexity of investees

Complex and often multi-national investees with diversified business models can make it challenging to understand and measure their impact.

We perform transaction-level impact assessments for every investment, using industry frameworks (such as the Impact Frontier’s 5 Dimensions of Impact, and IRIS+) to identify the specific business activities and revenue lines that are driving impact and the KPIs we can use to track this over time. We map these back to the SDGs and specific targets to ensure that we are consistent in how we define impact.

Data challenges have been mentioned in the context of listed equities, but we have found that, if anything, the larger budgets that listed equity companies typically possess by virtue of their size generally improves measurement and disclosure.

Data availability and collection is a key aspect of our engagement with the companies’ management teams as outlined in the emerging market equity impact case study above.

Summary: how Schroders applies impact best practice to listed equities

The challenges presented above highlight the need for rigorous systems of impact measurement and management when investing in listed companies.

Consistency: Our impact framework builds on BlueOrchard’s 20+ years of expertise and is consistent across asset classes. We apply the same principles in listed equity as we do within private equity, private debt or listed debt – of course allowing for asset-class or geographic nuances. This consistency is core to our offering and to our mission of scaling impact with integrity: we believe that the core principles (intent, contribution and measurement) and frameworks of impact management and measurement can be rigorously applied across asset classes, including in listed equities.

Rigour: Our proprietary impact toolkit enables us to measure and monitor impact progress across the investment lifecycle (from impact initiation, annual monitoring and engagement, through to exit and even beyond) for every investee and leverages the insights and learnings embedded in BlueOrchard's B.Impact™ framework. Our independent governance structure the Impact Assessment Group (IAG) vets every transaction for admission into the impact universe, providing an additional layer of scrutiny to ensure that we are truly investing in companies that are driving positive change, alongside financial return.  

Transparency is critical in the rapidly expanding impact market. Clear and transparent impact reporting, alongside external verification of our impact framework ensures accountability and means that our impact practices can be benchmarked against those of our peers.

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The views and opinions contained herein are those of Schroders’ investment teams and/or Economics Group, and do not necessarily represent Schroder Investment Management North America Inc.’s house views. These views are subject to change. This information is intended to be for information purposes only and it is not intended as promotional material in any respect.


Catherine Macaulay
Impact Investment Lead
Maria Teresa Zappia
Head of Sustainability and Impact at Schroders Capital


Impact Investing
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