Roundtable on the future of impact reporting in listed equities

This insight was originally produced by WHEB Asset Management, now part of Guinness Global Investors.

In late February, WHEB convened a select group of clients, consultants, data providers and fund selectors to discuss the future of impact reporting in listed equities (see attendee list below). Since WHEB’s first report in 2014, reports have grown dramatically in length and sophistication. From just one data point on carbon emissions in that first report, by 2024 WHEB’s report contained 23 separate carbon data points. Many of these are now required by clients and even regulators. After a decade of practice, it was time to take stock and reflect on where impact reporting has come from and where it might be going.

After an initial wide-ranging conversation, participants then focused on two areas: standardisation and the reporting of real-world outcomes. The key headlines from the roundtable were:

1. Impact reporting fulfils a key purpose

At least in WHEB’s case, impact reports are very popular. They are widely read by clients, consultants, NGOs, employees, business partners and peers. Their fundamental purpose is to enable clients and other stakeholders to hold us to account and answer the question, ‘are we doing what we said we would do’? Metrics and case studies that provide evidence that underpin claims of positive impact have become much more common, but further improvements in the robustness and accuracy of this data are still needed. Furthermore, it was suggested that reports should not just seek to justify and explain activity, but also to serve as a mechanism for learning and improvement.

2. A clear theory of change underpins impact reporting

Setting out a clear theory of change (ToC) is now firmly established as a core requirement for impact investments. This may be done at the level of the portfolio overall but will also be evident in each individual investment influencing how ultimate outcomes get reported (see below).

3. Standardisation emerged as the key next step in impact reporting

The need to standardise reporting formats and metrics (see below) to add comparability and manage complexity was a high priority among the group and particularly important for advisers and other intermediaries who want to compare performance between different funds. However, standardising while not losing the ability to provide context was seen as a key tension.

Deep-dive: Standardising impact reporting

The need to standardise key elements of impact reports was a key priority for roundtable participants. The group argued that considerable progress on this has already been made; widely-shared definitions of 'impact', and the centrality of a theory of change being two areas where there is now clear agreement. Beyond this standardising the format of reporting, for example *what* gets reported and *how* it is displayed, is less advanced.

Regulatory reporting requirements, for example, under SDR, are forcing progress here. Agreement on the actual datapoints that are reported is still a distant prospect, not least because the context of impact data is so important and may mean standardised data is inherently problematic. For example, a new wind farm in Norway, which has an electricity grid dominated by low carbon energy, is much less impactful in reducing emissions, than a new wind farm in India where the electricity grid is still dominated by fossil power. Nonetheless, even where context is critical, presenting narrative information that provides this context but in a standardised format would be helpful.

Focusing on data, it was generally agreed that standardising calculation and aggregation methodologies should be doable. Participants pointed to other investment styles (eg value investing) where metrics have been standardised and are used across industry. It was also agreed that data aggregation is important in order to present a digestible set of data points to clients, but that this should only be done where clients can also access underlying data points and evidence.

Finally, there was also clear agreement that the '*perfect should not be the enemy of the good*' but limitations in data presentation or quality should nonetheless always be disclosed.

4. Materiality as a key organising principle

As impact reporting has become more popular, so demand for more data has also grown. This is now reaching a point of overload with a need to refocus on relevant – or material – data.

5. The impact report as one element in effective communication

Different audiences have different needs and impact reports on their own will not meet all these needs. Some audiences prefer storytelling and narrative that makes impact investing accessible. Others prefer detailed descriptions of investment processes and metrics that underpin the credibility of the approach and combat greenwashing concerns. The impact report is one element that can support effective communication but needs to be complemented by other communication tools.

6. Focusing on outcomes

While there was a clear emphasis on standardising reports, one area where more innovation is still needed is in developing effective ways of measuring the real-world outcomes that are associated with impact investments.

Deep-dive: Focusing on outcomes not activities

Impact reports typically disclose data on activities and not real-world outcomes. This is understandable. For example, engagement often takes time to result in a real-world outcome. Activities are often reported as an interim measure before outcomes are visible. In addition, complexity in how outcomes are achieved as well as investors' fears of overclaiming on their influence often limit reporting of real-world outcomes. Real-world outcome metrics are also often seen as 'moral' issues and tend to attract less support than metrics focused on activity let alone financial metrics. Comparing outcomes is also challenging, particularly as the context can be so central. For example, supplying education in an underserved community is arguably more impactful than in a community that is already well-served.

The group nonetheless believed that it is possible to bridge the gap between activity metrics and real-world outcomes. For example, investors can report on interim activity metrics that show progress towards an explicit long-term real-world outcome. Investors can also set out activity metrics as strategic interventions that seek to deliver real-world outcomes across a larger system, for example, providing data on the number of interactions with policy makers aimed at achieving a specific policy goal. Transparency in setting targets and milestones is crucial in providing a clear context for reporting of activity, as is being clear about the theory of change that governs activity and in answering the question of 'how is this activity contributing to the real world outcome we are targeting'.

With thanks to our roundtable participants:

Archie Cage, Tribe Impact Capital
Bella Landymore, Impact Investing Institute
Conor McQuistin, Net Purpose
Dillon Piggott, East Sussex Pension Fund
Helen Wiggs, ShareAction
Jake Moeller, Square Mile Investment Consulting and Research
Jordan Griffiths, Barnett Waddingham
Matthias Lomas, Guy’s and St Thomas’ Foundation
Paige Nicol, BlueMark