Webinar: 5 Ways We Measure Investment Impact


Sonen’s webinar, 5 Ways We Measure Investment Impact, is available for replay. This webinar is based on Sonen’s 2016 Impact Report, and it highlights the social and environmental impacts generated by its four investment strategies.

Also included are responses to an additional 23 questions that are not on the replay.


Q&A Continued…


  • If markets are efficient over the long run, why wouldn’t all investors grow their portfolio of “ESG” companies, in which case, wouldn’t ESG-investing just be ‘investing’? In other words, how do you frame the investment thesis over the long run in terms of expected outsized returns vs. the MSCI ACWI?

As the long-term value of incorporating ESG factors into a company’s operations continue to demonstrate benefits to the bottom line, we fully anticipate that investment managers will utilize these factors as core to their investment process. Ultimately, we also believe that ESG will not represent a type of investment strategy, but simply be a core part of investment research and security selection.  In a review of over 2,200 academic studies focusing on the relationship between environmental, social, and governance (ESG) criteria and corporate financial performance (CFP), nearly 90% of the 2,200 studies showed no adverse connection between ESG and CFP, and, more importantly, many of the studies showed a positive correlation. (Source)


  • It would seem to be that Sonen Capital reports impact in excess, it must be costly. I was wondering how efficiently you bring all that impact information/data together and then overlay it with financial reporting? Do you use third-party tools? Is the process at all automated? Do you have any plans to streamline it? What are your pain points when it comes to data and reporting?

We do not feel that we report impact in excess – we enjoy a strong reputation for providing greater clarity and transparency and our reporting is an important aspect of our service. Our impact measurement and reporting, which includes data collection and management, is a fully integrated part of our investment process. No investments are made without having optimized financial and impact considerations.


We do use third party ESG data, which is a standard market practice. The challenges in impact reporting most often comes in the lack of uniformity and standardization, and even when impact indicators are fairly straightforward, it is often necessary to undertake some basic auditing or data cleansing to ensure that data points from different sources are indeed reporting the same thing.


We anticipate that continuing maturation of the impact investing industry will result in more resources directed to the nascent effort of standardizing impact data. Promising efforts include IRIS and the Sustainability Accounting Standards Board, as well as the B-Corp and GIIRS ratings movements.


  • What would be an example of a community development investment?

Community development investments include small business administration loans; loans for affordable housing rentals and affordable housing homeownership; and project finance for community-based facilities (such as nursing homes)


  • What does the Y axis (Tons CO2 / $MM SALES) mean?

This ratio, tons of carbon dioxide emissions per million dollars of sales, commonly referred to as “intensity,” helps compare companies of different sizes. Essentially it communicates the amount of carbon emissions that are required to produce one unit of economic output, and thus helps compare companies that may be operating at significantly different scales.


  • Has the UN issued guidelines in connection with the SDG’s and to what extent are these used by Sonen Capital.

The UN has issued a series of targets for each SDG (usually 5-7 targets for each) and in mid-2016 released a set of 170 impact indicators that correspond to specific SDGs and targets. There is not much guidance on how to implement these indicators at this point, but we anticipate that the UN will release some useful guidance on how to integrate impact indicators with business activities. One example is the UN SDG Compass Guide that we mentioned that we have found to be a useful resource. Please see pages 11-14 in our 2016 Annual Impact Report for a sample of how we connect the SDG impact indicators to specific securities.


  • So does the graphic show that AIMS for the first bond is relatively less than the AIMS performance for the thematic bond. What is the rational for having both kinds of bonds in the portfolio?

Our Global Fixed Income strategy owns a variety of bonds in order to provide portfolio diversification commensurate with the Bloomberg Barclays Global Aggregate Bond Index. This index, and comparably our strategy, includes supranational bonds, sovereign bonds, corporate bonds, municipal bonds and agency bonds. AIMS helps communicate how impact varies across these different kinds of fixed income securities. For example, sovereign bonds, which often form a core allocation in fixed income, express AIMS characteristics in a much different manner than municipal bonds – largely through the scale and impact intentionality of underlying project implementation.


  • What is MSCI ACWI and what is it used for?

The ACWI is the MSCI All Country World Index – this is the market benchmark Sonen uses to compare financial and impact performance for its Global Public Equity strategy.


  • How frequently do you recalculate sources of revenue for categorization purposes, or over a rolling multi-year period?

This calculation is done annually. Typically corporate revenues do not fluctuate significantly within a given year, which obviates the need to more frequently re-categorize a business’s core thematic activity.


  • Your report shows your relevant indicators for the SDG targets, but only includes one stock example with data. Have you attempted to aggregate the data for multiple stocks using your relevant indicators?

The impact indicators for each SDG were introduced in mid 2016 and not fully ratified until later in the year. We are attempting to collect relevant data wherever possible, and aggregate accordingly.  One challenge we anticipate is the lack of uniformity in the underlying corporate data and the ensuing challenge of aggregating data that are not communicating exactly the same thing (which is another reason we use IRIS indicators to the maximum extent possible).


The report included only a few specific security examples, although there are many, to show that such an analysis is possible, and that there are indeed ways that individual securities, as well as entire portfolios, can make meaningful (and measurable!) contributions to the SDGs. As we mentioned previously, our clients receive more specific examples of securities in quarterly impact reports.


Our future impact measurement efforts, as they relate to the SDGs, will focus heavily on gathering more of this kind of data and information across asset classes and finding practical ways in which this kind of information can be gathered, aggregated and reported in a consistent manner.


  • Do you report energy saved/conserved on an annual basis or over the life of an energy saving measure?

Energy saved is calculated on an annual basis, and is the total amount of KWh that has been saved due to energy efficient construction or energy efficiency retrofits.


  • Are GIC classifications being used for your sub-sectors?

We do use GIC sub-industry classifications. Sub-industry categorizations provide greater detail in understanding underlying business activities.


  • How do you deal with a lack of disclosure regarding a reported green bond? I.e. how can one therefore, measure its “scale” and “measurability”?

Many of the green bonds that we invest in articulate specific impact outputs that result from the investment activity. For example, for solar installations, we often know, with a degree of precision, the total installed capacity of renewable power generation upon project completion. For supranational green bonds that support climate change adaptation and mitigation, specific project outputs are also estimated, alongside the total number of estimated beneficiaries of such projects.


It is important to note that the AIMS framework can help investors compare these four dimensions of impact creation in relative terms between two similar investments. We know that in the example above for solar installations, the measurability of this green bond is fairly straightforward. But for a large, general issue corporate bond, the measurability is more difficult.


  • Have you looked at setting science based targets for greenhouse gas abatement across some of your asset classes, such as property or energy generation? http://sciencebasedtargets.org/

As we mentioned in our webinar, we are currently undertaking an assessment of our Global Public Equity strategy’s performance in relation to Science Based Targets. We hope to publish the results of this study in mid-2017.


  • To what extent do you collect ESG data through secondary sources? Or do you make direct approaches for ESG data points from public equities?

We rely primarily on third party data providers for our ESG data analysis and ESG data collection. However, we combine this data with our own research on individual securities’ sustainability performance.


  • Please explain the charts on this slide?

If you are referring to the charts below, these are graphical depictions of the AIMS scoring methodology. We simply identify each of the four dimensions of impact creation in AIMS as being “high,” “medium,” or “low.” These radar charts are intended only to be an illustration of these relative scores.



  • To what extent do the labor management average scores reflect Sonen’s commitment to invest in lower/or lesser served geographies?

As you will note in many of our impact frameworks, Sonen endeavors to invest in lesser served geographies and provide social benefits to disadvantaged populations across all impact themes.


In this case, the labor management evaluation reflects on topics such as benefits provided to the workforce, professional development opportunities, and rates of unionization. These variables do not necessarily communicate the extent to which such benefits may accrue to lesser served geographies.


  • Does every investment go through AIMS as well as the UN Sustainability Goals and IRIS?

Yes, every investment is subject to our AIMS framework, largely as a mechanism to help us understand where impact is expressed most readily. We also apply the UN Sustainable Development Goals to all investments, as well as among our strategies as a whole, to determine where and how we are making contributions to the SDGs.


IRIS is used only in our real assets strategy, where impact outputs are much more easily quantified and measured through the use of such standardized indicators.


  • To what extent do the ESG scores reflect security selection and portfolio construction, as opposed to your direct influence of corporate behavior (or additionality)?

ESG scores are evaluated regularly to ensure consistent impact performance of our investment strategies. It is difficult to determine how or if our specific investments result in any material change in ESG performance over time (i.e. investor additionality). For public equities in particular, such additionality is difficult to prove or attribute to any single action.


However, in our shareholder engagement work we often address specific ESG concerns, and in cases where companies do change their policies or practices, investor additionality can indeed be identified and Sonen may enjoy some attribution alongside other investors.


  • Are these data points because more of these investments were added to the portfolio or because there was that much change in a year?

The table below is a summary of the impact performance of our real assets strategy as of the end of 2015 and then end of 2016. The column at the far right shows the change in those impact indicators over the course of 2016.


The increase in most data points is due to a number of factors: 1) in the case of clean power, we added another investment over the course of 2016, and 2) the existing investments continued to expand renewable energy production during the period. We expect these indicators to continue to increase for the same reasons over the life of real assets strategy.


In the case of Sustainable Timber, we have only one investment currently, but that investment significantly increased activity during 2016.


Lastly, for Green Real Estate, impact indicators grew due to a significant increase in construction and renovation among two green real estate investments, one in the US and one in South Africa.


We anticipate seeing considerable impact growth, as measured through these IRIS indicators, over the life of the real assets strategy.


  • How comparable is the data between 2015/2016 (is this a pool of more investments? or investees having increased their renewable sources etc.)?

See response to question number 19. This data is intended to be comparable between any two time periods. In this case, the table in question 19 provides a snapshot of the total impact at the end of 2015 and the total impact at the end of 2016.


  • To what extent will clarification of measurability come through qualitative case study/analysis?

We believe that qualitative data is just as important as quantitative data in reporting holistic impact. For this reason, we try to combine both types of data to provide a deeper understanding of what impact is actually occurring. As we mentioned during the webinar, our investor reports include specific security examples that typify the kinds of quantitative data we are collecting and reporting.


  • Is scale relative to Sonen’s investment, or the investment as a whole? (Assuming the investment as a whole)?

Scale refers to the investment as a whole – not just Sonen’s particular contribution. When we discussed the relative scale between a sovereign bond (billions of dollars) and a municipal bond (tens of millions of dollars), we refer to the scale of the work that is ultimately underwritten by a bond’s proceeds.


  • Are their internal guidelines for using AIMS? Noting the subjectivity, I saw that guidelines such as those within Hornsby’s good investor (2013) can provide some use?

We have defined each dimension of AIMS as specifically as we can. As we mentioned in response to a question about AIMS during the webinar, we are now attempting to make the qualifications of each dimension less subjective and more rooted in quantitative thresholds. We believe such a pursuit will lead to more uniformity in comparing these four variables across investments.

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