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Impact Investing: Responsible investing’s latest frontier

Harbour sails 2
Lewis Fowler | Posted on Jul 1, 2022

What is Impact Investing? 

Responsible investing has evolved over time, from simple portfolio exclusions such as alcohol and tobacco, through to only selecting investments that meet certain Environmental, Social and Governance (ESG) criteria, and investment managers engaging with company management to try to effect positive change in these ESG areas.  

Impact investing has become a buzzword of late and has evolved to mean slightly different things to different people. What is certain is that it goes well beyond responsible investing in its aims and requires measurement and disclosure to protect its integrity. 

Whilst there is no universal definition, there are several common key concepts: 

  • Avoiding harm 
  • Incremental benefit 
  • Engagement
  • Measurement & disclosure 

At Harbour we subscribe to the Global Impact Investing Network’s (GIIN) definition:  

Investments made with the intention to generate positive, measurable social and/or environmental impact alongside a financial return. 


Source: Bridges Fund Management, Impact Management Project 

Why consider Impact Investing?

Impact investing challenges traditional views that social and environmental issues should be addressed by philanthropy, and that market investments should focus exclusively on achieving financial returns. Not long ago, groups of investors thought that ESG-aligned investing would be a breach of fiduciary duty to their clients – that it would be inherently investing in lower-returning assets. This is not necessarily the case – looking at the MSCI ACWI Sustainable Impact Index (an index of companies linked to positive impacts) versus the MSCI ACWI Index (an index of companies irrespective of positive or negative impact) during 2022, the sustainable index has returned -6.8% (as 31 May) whilst the regular index is down -12.8%. We saw the same during the 2020 COVID drawdown and subsequent market rally – the sustainable index outperformed significantly.

Impact investing offers opportunities for investors to address social and environmental issues, to try and make a difference in shaping the world of our future, all while producing financial returns consistent with market norms.

How does impact differ across various types of assets?

It is obvious when investing across different asset classes that a ‘one-size fits all’ approach to impact investing does not work, and some flexibility in definition is needed. Here we explore some of the factors we account for when assessing impact.

Private Equity

The theory of impact is easy to apply to private equity and venture capital investments:

  • Investors are providing much-needed financing to early-stage companies that would be unable to make an impact without it (incremental benefit)
  • Investors are directly engaged with company management and can help to shape the impact (engagement)

So, if investors can satisfy ‘measurement & disclosure’ and ‘avoiding harm’ then it can be an easy case to make.

Avoiding harm can be straightforward to demonstrate with early-stage companies, given that often the focus of their product line is narrower when compared to publicly listed companies that may have been around for a long time.

Measurement & disclosure can be tricky to achieve in early stage, often pre-product, companies. But as a company grows an investor can help to shape the measurement and disclosure of certain metrics which will enable them to gauge impact. The typically narrower focus of early-stage companies can often mean that it is easier to define this impact. This contrasts with a public company which may be less inclined to disclose certain metrics you may wish to measure, as there is no ‘carrot’ of funding that you can hold out to them.

Listed Equity

The incremental benefit referred to in some definitions of impact investing asks what would happen if you didn’t make the investment. This has led to many questioning the validity of impact investing in listed equities, where buying shares in a company on an exchange does not provide any extra financing to a company. As an investor in listed equities, our strong view is that the listed equity market – the biggest pool of capital on the planet – is instrumental in making meaningful impact. Challenges such as climate change, responsible production and gender equality are simply too large to ignore the role of listed companies.

This same issue has been tackled by the Responsible Investing Association Australasia (RIAA), an organisation dedicated to ensuring capital is aligned with achieving a healthy society, environment and economy. Its Certification Programme is the longest running responsible investment programme in the world. It is not a label that you can pay to acquire, nor an organisation that you can influence away from its core mission and the certification is not an outcome derived through the comfortable middle ground. Over the last year, several listed equity funds have been certified by the organisation as impact investing funds. Of most note for us is the T. Rowe Price Global Impact Fund which features in our own Harbour Sustainable Impact Fund.

Investing in share markets sends strong signals to companies about what activities are valued by shareholders. Whilst buying shares may not directly provide additional capital to a company, the re-allocation of capital from companies on the wrong side of change to companies on the right side of change sends that signal. To make this message clearer, listed market impact investing requires additional engagement with company management on the impactful activities of a company (and those which may be causing less-desirable externalities). Harbour engages extensively with companies to promote sustainable capital allocation, which gives management confidence to invest in projects that are better for people and planet. Our engagement has also led to significant improvements in disclosure by several companies, which makes measurement of impact possible. Having been active investors for a long time, companies often contact us for advice on what would be useful metrics to illustrate performance against impact metrics.

Bonds (and Sustainable Bonds)

Some bonds are more obviously impactful than others. A regular corporate bond will often have a ‘use of proceeds’ section in the term sheet, and this can be as broad as ‘general corporate funding’, which gives little away in terms of impact. In this case, it is important to go through a similar process to that of listed equities.

On the other hand, there has also been the development of a spectrum of bonds targeting specific outcomes, such as Sustainability-Linked Bonds, Social Bonds and Green Bonds (broadly termed Sustainable Bonds). One example of a Social Bond is the Asian Development Bank’s Gender Bonds which finance projects targeting gender equality and women’s empowerment.

Sustainability-Linked Bonds (SLBs) link the quantum of their coupon payment to the borrower’s achievement of an explicit sustainability target. These bonds therefore explicitly incentivise sustainability outcomes. In our view, the incentives they create mean that they are instruments of change, and therefore impact investments. Clearly defined targets in the SLB require measurement and verification.

But in our view, SLBs only qualify as an impact investment if the embedded targets are meaningful and meet standards required to achieve adequate progress towards the UN Sustainable Development Goals. In the absence of baselines being defined within the SDGs we turn to relevant scientific bodies, such as the EU taxonomy and the Science Based Targets initiative (SBTi) for guidance. We look for targets where the company is required to act beyond the status quo for them to be met.

In contrast, we have witnessed with Green Bonds that standards can be loose and green labelling does not necessarily equate to assets that would meet reasonable standards of ‘greenness’ or impact.  To guard against this, we have developed a Harbour framework to determine whether individual SLBs or Green Bonds qualify as impact.

Impact Investment Examples

The following will detail an example from each area to bring together the thoughts we have laid out above and help to highlight the differences in approaches. This will also demonstrate that not every example is a slam-dunk impact, and that there are bound to be some controversial examples that one manager will consider impact, whilst another may see the negatives as outweighing the positives.

Calix (Listed Equity)


 eg1 120 v2

Asian Development Bank Gender Bonds (Fixed Interest)

 Asian dev bank

 eg2 120 v2

UBCO (Private Equity – Co-investment)


eg3 120 v2

 *Read more about the partnership here.


There is no one agreed-upon definition of impact investing, and this relatively new area will continue to develop. It is vital that investors can hold each other to account to avoid impact investing suffering the fate of greenwashing; however, it is important to recognise that differing approaches need to be taken when considering different types of assets.

When building our Sustainable Impact Fund, we considered all of the issues we highlight above, and how we can incorporate them into our investment process to ensure that we achieve unquestionable impact. Possibly where opinions are divided is on the issue of incremental benefit in secondary markets. However with 30% of all carbon dioxide emissions coming from listed companies it is simply not feasible to ignore the role that the largest pool of capital in the world can play, not only in the energy transition, but also in issues such as gender equality and social wellbeing. We recognise that additionality or incremental benefit may be harder to demonstrate in secondary markets, and therefore place higher importance on other elements of impact, such as engagement and avoiding harm, when we are considering these investments.

As investors, but also as humans, we have a moral duty to contribute to solving the challenges facing our planet and population. Through impact investing we can be agents of change, while also achieving competitive returns for investors.

For more information on the Harbour Sustainable Impact Fund please visit

Harbour Asset Management Limited is the issuer and manager of the Harbour Investment Funds. Investors must receive and should read carefully the Product Disclosure Statement, available at We are required to publish quarterly Fund updates showing returns and total fees during the previous year, also available at  Harbour Asset Management Limited also manages wholesale unit trusts. To invest as a Wholesale Investor, investors must fit the criteria as set out in the Financial Markets Conduct Act 2013. This publication is provided in good faith for general information purposes only. Information has been prepared from sources believed to be reliable and accurate at the time of publication, but this is not guaranteed. Information, analysis or views contained herein reflect a judgement at the date of publication and are subject to change without notice. This is not intended to constitute advice to any person.  To the extent that any such information, analysis, opinions or views constitutes advice, it does not take into account any person’s particular financial situation or goals and, accordingly, does not constitute financial advice under the Financial Markets Conduct Act 2013. This does not constitute advice of a legal, accounting, tax or other nature to any persons.  You should consult your tax adviser in order to understand the impact of investment decisions on your tax position. The price, value and income derived from investments may fluctuate and investors may get back less than originally invested.  Where an investment is denominated in a foreign currency, changes in rates of exchange may have an adverse effect on the value, price or income of the investment. Actual performance will be affected by fund charges as well as the timing of an investor’s cash flows into or out of the Fund.. Past performance is not indicative of future results, and no representation or warranty, express or implied, is made regarding future performance. Neither Harbour Asset Management Limited nor any other person guarantees repayment of any capital or any returns on capital invested in the investments. To the maximum extent permitted by law, no liability or responsibility is accepted for any loss or damage, direct or consequential, arising from or in connection with this or its contents.