How can the SDI AOP approach demonstrate applying the GIIN guidance for listed equities?

GIIN Listed Equities Guidance Framework concepts and expectations.

The Global Impact Investing Network recently published some guidance for how to apply impact investment principles in the listed equities space. SDI AOP’s data has great flexibility which allows it to be applied for a variety of investment use cases. We have explored how it can align with GIIN’s expectation.

Basic Expectations for Listed Equities:

The fund’s or portfolio’s prospectus (or similar, required document per jurisdiction) states the intended real-world impact of the investment strategy. This is supported by a problem statement and a theory of change, articulated in internal documentation, that includes a description of how the fund or portfolio will contribute to accelerating the targeted impacts of its portfolio companies.

SDI offering

SDI AOP examples

The GIIN guidance gives examples of investors defining a strategy in terms of SDG themes and targets or providing solutions to SDG challenges through their products & services.

The SDI taxonomy offers an overarching sustainability framework which can be applied across asset classes. Asset owners have designed it to translate the global SDGs into investable products and services in a consistent manner for large institutional investors.

Members have referenced the SDI taxonomy in establishing overarching investment targets for the proportion of AUM invested in companies with products & services contributing to sustainable development (eg APG).

Users have identified specific sustainability themes aligned with SDGs which reflect the priorities of pension fund beneficiaries (eg PGB)

SDI offering

SDI AOP examples

The GIIN guidance expects the potential universe and resulting portfolio to apply extra parameters beyond traditional ESG data to determine relevance. The SDI revenue classification segments reported revenues according to the SDI taxonomy to determine alignment with SDGs or sustainability themes.

Members have applied the SDI taxonomy and revenue thresholds to define the universe for active funds (eg PGGM)

Members use the data to identify opportunities under sustainability themes such as climate (eg BCI).

Basic Expectations for Listed Equities 2

The business models and core activities of each company held in the portfolio should be directly relevant to the fund’s impact strategy and investment thesis and should represent a material part of the company’s business, particularly for companies that are large or diversified in their scope of business. In addition, the fund manager should define how a holding is expected to contribute to the changes targeted by their impact strategy.

SDI offering

SDI AOP examples

The GIIN guidance includes products & services, and revenues as potential ways investors can determine levels of alignment. The SDI revenue classification identifies material levels of revenues which reflect the business model of the company. It provides actual data points for users wishing to apply bespoke thresholds. SDI revenue data can also be filtered by themes such as climate or biodiversity.

Members have applied the SDI taxonomy and determined material revenue levels for inclusion in the portfolio. This can also be applied to thematic targets such as ‘to have 10% of the portfolio invested in climate solutions by 2030’ (eg HESTA).
Further work is needed to enhance the ability of investors to understand the impact of listed equity holdings.

Basic Expectations for Listed Equities 3

The fund actively manages average holding periods of equities within the portfolio in a manner that contributes to the fund’s ability to achieve its stated impact goals.

SDI offering

SDI AOP examples

This depends on each investor’s investment approach and will be affected by a range of factors besides impact considerations.

Basic Expectations for Listed Equities 1:

The engagement priorities are developed based on the fund’s or portfolio’s theory of change and focus on actions that can accelerate the company’s contributions to the impact objectives of the fund.

SDI offering

SDI AOP examples

GIIN guidance includes increasing production of sustainable products & services, enhancing access for underserved populations, improving the sustainability of a product and allocating R&D as examples. SDI revenue data enables trends in revenues to be monitored to understand progress over time against a consistent benchmark. SDI Outlook data enables investors to track the distribution of research efforts using patents as a proxy.

Members used the objective data on both revenues and patent activity to assess progress on SDG contributions at engagement targets. (eg AusSuper).

Investors are considering a range of data points, including SDI AOP data, in assessing the speed and direction of climate transition strategies by companies as part of their collaborative engagement. 

Basic Expectations for Listed Equities 2:

The effectiveness of engagement is measured in relation to progress towards changes or improvements that contribute to the outcomes that the fund or portfolio investment strategy seeks to deliver. 

SDI offering

SDI AOP examples

GIIN guidance refers to several outcome/impact indicators which are not yet available across listed equities at scale. At present this is more of an implied link to the products/services, than a calculated/monitored measure.

Large, listed equities portfolios are still working on how to develop and apply such measures as part of their engagement programme.

Basic Expectations for Listed Equities 3:

The progress towards achieving the goals of engagement processes is an important consideration in choosing the timing of exits. The fund or portfolio should be guided by an internal policy framework defining milestones and criteria for escalation and for exiting.

SDI offering

SDI AOP examples

The GIIN guidance suggests investors determine what is unacceptable. As indicated above, SDI data facilitate tracking of progress in a consistent manner. SDI data also captures negative contributions data across themes such as fossil fuels, single use plastics, gambling, and tobacco.

Users apply their own thresholds to assess levels of response to engagement. These range from zero tolerance to a maximum level (eg 10% or 20% of revenues) which is permitted. Investors continue to review and revise these positions to reflect the changing context and expectations.

Basic Expectations for Listed Equities 1:

The fund or portfolio applies techniques to evaluate impact performance beyond relative measures of peer performance and considers whether activities and outputs of companies are contributing to real-world changes consistent with the fund’s goals and theory of change.

SDI offering

SDI AOP examples

The GIIN guidance proposes linking output data to outcomes. SDI Revenue data provides a means of tracking increasing alignment over time.

SDI Outlook data provides detailed insights into company R&D activities, which can be used to verify company statements.

SDI Outcome data is being developed to understand how revenues can translate into outputs and outcomes by providing greater granularity and context.

Members have used the SDI revenue data to report to beneficiaries on alignment with SDGs, (eg Philips)

Members have applied the SDI Outlook company patent profiles to provide a forward-looking indicator of activities to contribute future sustainability technologies and solutions.

Members are seeking further information to increase transparency on the links to real world outcomes and geographical distribution, (work in progress).