Publi­ca­ti­on of our Eng­lish posi­ti­on paper #01 Impact Investing

In cele­bra­ti­on of the release of our Eng­lish posi­ti­on paper, we enga­ged in a dia­lo­gue with Young-Jin Choi, Direc­tor of Impact & ESG at Vidia Equi­ty, lead aut­hor of the posi­ti­on paper and Co-lead of Arbeits­kreis Wir­kungs­mes­sung und Wir­kungs­ma­nage­ment. Our con­ver­sa­ti­on del­ves into its con­tent, objec­ti­ves, the four defi­ning cha­rac­te­ristics of impact inves­t­ing, and the signi­fi­can­ce of distin­gu­is­hing bet­ween dif­fe­rent ESG and impact inves­t­ing approaches: 

What does the posi­ti­on paper #01 Impact Inves­t­ing say spe­ci­fi­cal­ly? What is its purpose?

Young-Jin Choi: The posi­ti­on paper shows dif­fe­rent nuan­ces asso­cia­ted with the term “impact inves­t­ing”. The paper’s main pur­po­se is to make the­se nuan­ces trans­pa­rent and to defi­ne ide­al cha­rac­te­ristics of what the Bun­des­in­itia­ti­ve Impact Inves­t­ing con­siders a “genui­ne” impact inves­t­ing practice.

At the same time, it should allow for reco­gni­zing the­ma­tic real-world impact stra­te­gies or real-world impact-ali­gned inves­t­ing prac­ti­ces as meaningful and desirable. 

What exact­ly is meant by the four core cha­rac­te­ristics that must be ful­fil­led in the nor­ma­ti­ve defi­ni­ti­on for “genui­ne” impact investing?

Young-Jin Choi: Even though it is pro­ba­b­ly obvious, it is wort­hwhile to cle­ar­ly sta­te that the crea­ti­on of net-posi­ti­ve real-world impact by an asset’s acti­vi­ties (or its trans­for­ma­ti­on) is key to impact inves­t­ing. Impact inves­tors not only care about an asset’s real-world impact per­for­mance but also seek to con­tri­bu­te through their own acti­vi­ties to an impact per­for­mance impro­ve­ment that would be unli­kely in their absence.  Moreo­ver, impact inves­tors cle­ar­ly docu­ment their real-world impact intent, impact accoun­ta­bi­li­ty and impact goals ear­ly on, as an inte­gral part of their invest­ment stra­tegy. Final­ly, during their invest­ment ope­ra­ti­ons, they make extra efforts to con­ti­nuous­ly mea­su­re and mana­ge their portfolio’s impact per­for­mance against the­se goals.

Why is it important to distin­gu­ish dif­fe­rent approa­ches and to dif­fe­ren­tia­te cle­ar­ly bet­ween impact and ESG approaches?

Young-Jin Choi: In recent years, the­re has been some con­fu­si­on when it comes to what it is that distin­gu­is­hes “genui­ne” impact inves­t­ing from “con­ven­tio­nal” ESG approa­ches. This may lead to an over­pro­mi­se of ESG-dri­ven real-world impact or an under­app­re­cia­ti­on of impact assets’ and impact inves­tors’ posi­ti­ve con­tri­bu­ti­ons to sol­ving socie­tal pro­blems. Grea­ter cla­ri­ty can help us to bet­ter reco­gni­ze and app­re­cia­te what ESG and impact inves­t­ing can and can­not deli­ver. Howe­ver, it is important to note that we are curr­ent­ly in a serious cli­ma­te emer­gen­cy that neces­si­ta­tes broa­der sys­te­mic chan­ges to the cur­rent eco­no­mic sys­tem design, which deter­mi­nes mar­ket pri­ces and reward struc­tures, at a sca­le and depth that goes far bey­ond what ESG and impact inves­tors can deli­ver absent the­se changes.