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7 Key Reasons to Complement ESG with Impact Data

The Impaakt Team

11 min Read Time | May 5th 2023

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As the world increasingly demands sustainable and socially responsible investment options, the financial industry must evolve and adapt to meet these expectations. Impact assessments are an innovative and transformative solution that goes beyond traditional ESG ratings, offering a complementary, more comprehensive, transparent, and actionable understanding of a company's impact on society and the environment.

In this article, we delve into seven compelling reasons why impact data is the new generation of sustainability data you should be looking out for. ESG data may be the bread and butter for investment specialists, but impact data is the game-changer that speaks directly to the hearts of end clients.

1. Enhanced Client Engagement

Offering impact data significantly enhances client engagement by providing a deeper understanding of their investments' real-world effects on society and the environment, fostering trust and stronger relationships. This valuable information also facilitates more meaningful conversations between financial professionals and their clients, addressing concerns and aspirations regarding sustainable investing. Impact data empowers clients to make informed decisions aligned with their values, leading to increased satisfaction and loyalty. Embracing impact allows financial institutions to meet the growing demand for responsible investment options and demonstrate their commitment to sustainability.

It's no surprise that impact data is more appealing to end clients than ESG data. Rather than solely evaluating financial risk for ESG reasons, clients want to know the extent of positive change their investments are making in the world. ESG may be a tool for investment specialists, but impact data is tailored to foster client discussion and engagement. Clients resonate best with impact data, and using ESG data to connect with them can actually cause disconnection and mistrust. Therefore, impact data is vital for financial institutions seeking to differentiate themselves and cultivate lasting relationships with clients who value sustainability and want to have a positive impact.

2. Holistic Impact Measurement

Impact measurement takes responsible investing to new heights by evaluating the entire spectrum of a company's footprint, from the impact of the company's core products and services to the externalities that accompany them, including both positive and negative effects on society and the environment. This comprehensive approach supplements traditional ESG assessments, which often focus on processes, policies and risk management. Thus, ESG data focuses on financial materiality, in other words, how society and the environment will impact the company at hand. Impact data, alternatively, focuses on environmental and social materiality, or, the impact of the company on the environment and society.

By prioritizing a holistic measurement of impact, investors can identify and support companies that are providing products and services that do good for the planet and society. This empowers financial institutions and their clients to make more informed decisions that align with their values and impact goals, fostering stronger relationships and long-term commitment to responsible investing.

3. Mitigating Greenwashing

Greenwashing, the practice of overstating a company's environmental and social credentials, has become a significant concern in the sustainability and responsible investing landscape. While ESG ratings play a crucial role in assessing a company's sustainability performance, they can be vulnerable to greenwashing, making it challenging for investors to differentiate between genuine sustainability champions and those merely claiming to prioritize sustainability.

Impact serves as a valuable complement of ESG because it evaluates the tangible social and environmental cost-benefits, which makes it less susceptible to accusations of greenwashing than traditional assessments (that focus primarily on the perceived responsibility of policies in place). Impact data also helps investors combat greenwashing by assessing the real-world impacts of a company's actions on society and the environment.

This comprehensive approach helps investors identify genuine impact champions and allocate resources to companies truly dedicated to making a positive difference. By incorporating both ESG ratings and impact assessments, investors can gain a more holistic understanding of a company's sustainability performance, ultimately leading to better-informed investment decisions.

4. Aligning with Global Goals

Impact investing plays a crucial role in helping investors align their portfolios with global sustainability goals, such as the United Nations' Sustainable Development Goals (SDGs). By aligning investments with these goals, investors can ensure that their resources contribute to a better future for all.

Incorporating impact data into investment strategies allows investors to identify and support companies actively working to achieve the SDGs. This targeted approach enables investors to direct their capital towards businesses that not only generate financial returns but also drive positive change on a global scale.

5. Enhanced Risk Management

Measuring impact, with the aid of collective intelligence, offers a more comprehensive approach to understanding long-term risks associated with sustainable or unsustainable businesses, such as assets that are likely to lose value over time. This holistic perspective, enriched by collective materiality assessments, enables investors to make better-informed decisions, minimize potential risks associated with environmental and social factors, and ultimately improve the resilience of their portfolios.

By leveraging collective intelligence, materiality assessments become more democratic, incorporating diverse perspectives to evaluate a company's actual impact. The use of collective and dynamic materiality assessments enables investors to focus on what matters most at a given point in time. This inclusive approach uncovers hidden risks that might not be apparent through ESG analysis alone. By understanding the tangible effects of a company's actions, investors can identify potential risks that could adversely affect their investments. This knowledge allows investors to make better-informed decisions and adjust their portfolios accordingly to minimize these risks.

6. Greater Transparency

The measurement of impact offers better transparency because it focuses on tangible outcomes of a company’s actions on the society and environment. The use of collective intelligence in impact measurement provides even greater transparency to investors because it involves a more diverse and inclusive evaluation process. This approach relies on the collective knowledge, expertise, and perspectives of numerous individuals, contributing to a more accurate and comprehensive assessment of a company's impact on society and the environment.

Collective intelligence allows for a wide range of viewpoints and expertise to be considered when evaluating a company's impact, with for objective of a more balanced and unbiased assessment. This inclusive process strives to ensure that multiple perspectives are taken into account, to reduce the potential for biases and blind spots that may exist in traditional analysis.

Greater transparency in impact investing not only encourages accountability but also helps investors make more informed decisions. By having access to a comprehensive and transparent evaluation of a company's impact, investors can allocate their resources more effectively, supporting companies that are best positioned to benefit the planet and society.

7. A better future

A sustainable future hinges on the active participation of investors in addressing global challenges and promoting a just, equitable, and environmentally responsible world. Impact investing transcends traditional ESG approaches, empowering investors to make a meaningful difference in tackling pressing issues such as climate change, poverty, and inequality.

By prioritizing impact, investors can contribute to transformative change, drive corporate responsibility, and pave the way for a more sustainable and resilient future that benefits both the planet and its people. Embracing impact investing is a vital step towards fostering a better world for generations to come.

Using impact data has the potential to revolutionize the financial industry by providing a more accurate and actionable understanding of a company's impact on society and the environment. By embracing impact, financial institutions, and their clients can make better-informed decisions that align with their values, foster stronger relationships, and contribute to a sustainable and socially responsible future.

At Impaakt, we are committed to promoting impact assessment as a powerful tool for driving positive change and fostering a more sustainable and responsible financial landscape. By leveraging collective intelligence and community-based platforms, we aim to provide investors with comprehensive and transparent impact data, enabling them to effectively allocate resources to companies that have a positive impact on the planet and society.

Join us on this journey towards a more impactful and equitable world, and let's make a lasting difference together.


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