Scientific Beta

This paper outlines the three principles of climate impact investing. At its core, climate impact investing is a strategy of aligning your climate goals with your investment behaviour. There is no one unique way to define your impact objectives, whether an individual, organisation, or fiduciary. Therefore, the ways and means of maintaining consistency with your goals will be as unique as your personality, but there are three principles that all investors should ensure their approach is consistent with.

In this paper, we will outline the three principles of climate impact investing. At its core, climate impact investing is a strategy of aligning your climate goals with your investment behaviour. There is no one unique way to define your impact objectives, whether an individual, organisation, or fiduciary. Therefore, the ways and means of maintaining consistency with your goals will be as unique as your personality, but there are three principles that all investors should ensure their approach is consistent with.

First, we need to ensure that our impact objectives are reflected in our approach to climate investing. Our investment decisions need to support our engagement activities, and real change will occur when the management of firms observe a clear link between their action and the responding investment reaction of climate-engaged investors.

Second, climate investing should not be thought of as an alpha source, but a non-financial decision. Green alpha is an illusion and strategies that focus on this imagined return driver will dilute both their true alpha drivers, and their impact objectives.

Third, portfolio greenwashing hides below a portfolio’s summary statistics and we need to ensure our strategy is actually doing good, in the way our impact objectives expect them to. We should not let our impact objectives be greenwashed away.