Sorting the sustainable from the spin: who's the 'real deal' on impact investing?

Abigail Rotheroe10th May 2021 - Pioneers Post




Impact fund investor Snowball wants nothing less than to change the behaviour of investors – and what might have seemed like a naïve hope just a few years ago now looks like the latest trend. But how do you cut through the spin now that everyone seems to have an impact product to sell? And as impact investment becomes ever more popular, is fund manager impact keeping up? Abigail Rotheroe explores the issues.


Investment has to change. At Snowball we have the big ambition of changing behaviours in capital markets so that all capital is invested for social and environmental – as well as financial – returns. When we started out four years ago, it felt idealistic to talk in this way. Now we don’t feel quite so out in the cold. In fact, quite the opposite. We are right in the middle of a movement that is accelerating not only towards new way of investing, but to a new impact economy.

The number of funds and investments available to impact investors who want to use their capital to create social and environmental change almost feels like an avalanche. This momentum is both exciting and a challenge. How do you cut through the spin now that everyone seems to have an impact product to sell? Who is the real deal and who just wants your cash?

In this article, we share the way we approach understanding the impact of our investments, as well as what we found when we delved more into the impact that our fund managers create.


In whom do we trust?

Snowball is a multi-asset fund of funds investing globally for impact. We mainly invest into impact funds run by fund management firms – or ‘fund managers’.

We think about impact on three levels. Firstly, by measuring the impact of our underlying investments, secondly by assessing the role of our fund managers in improving the impact of these investments, and finally, by interrogating our own role in driving up impact standards – both in our own portfolio, and through collaborating with other impact investors who are committed to sorting the sustainable from the spin.



When we invest through funds, like anyone with a pensions or savings product, we place our trust in the expertise of our fund managers to deliver on the strategy described and report to us on how our investment has performed. Ideally, investing for impact (and in the future we hope all investing) – is no different, but sees managers reporting on impact as well as financial returns.

Currently, however, there isn’t a common understanding of what good practice looks like and there is no standard benchmark against which fund managers can hold themselves to account.

Until we have an external standard, we use a framework we created to assess and monitor the impact of our managers. The framework (see image below) has developed over time, always connecting into best practice across the sector, including the Impact Management Project's investor contribution strategies and the Operating Principles for Impact Management developed by International Finance Corporation (IFC).



You can see the way that our framework maps against the Impact Management Project thinking in the diagram below. You’ll see there are two additional criteria we developed. The first, ‘mission and behaviours’, is essential for us because of the way we view every investment through the lens of our long-term goal of systems change, so we place additional emphasis on the values of our managers. The last, ‘impact risk management’, is included because we think there are impact risks specific to fund management and so want to go further than the existing criteria which work well for measuring enterprise impact.




How do we select our fund managers?

When we are selecting managers for our portfolio, first and foremost we want to know if they share our vision of wholesale change in financial markets and really want to improve outcomes for people and the planet through their portfolios, at the same time as delivering market returns.



We look for independent oversight of decision making and for protection in place against mission drift – for example being a B Corporation.

An incredibly positive example of this aligned mission and behaviours criteria in action is our investment into Big Issue Invest’s Social Enterprises Investment Funds I & II which provide medium-term growth capital to social enterprises with potential for growth, financial sustainability and social impact. Big Issue Invest has been financing the growth of sustainable social enterprises through profit with-purpose businesses loans since 2005; investing in more than 400 social enterprises and charities across the UK. They are a certified B Corporation owned by the Big Issue Group, a private company limited by guarantee. This protects against mission drift as does Big Issue Invest’s adherence to the wider Big Issue mission to build a world which works for everyone. Big Issue Invest is committed to impact at all levels of its organisation with all assets invested for impact. This impact intent and mission is backed by behaviours as demonstrated by their work leading the sector’s response to the Covid-19 crisis – partnering with others to support the delivery of the Resilience and Recovery Loan Fund to provide emergency loans to social enterprises and charities.

In selecting managers, we particularly appreciate an honest and reflective approach; the ability to say what hasn’t worked. One of our managers recently reported that they had tried to put a financial value on their impact – but discovered it didn’t make sense – so they stopped and tried another approach. Another manager reported that they are struggling to get the data they need but at least they are getting more than they got last year. We love reading this open approach to learning. Such transparency and critical reflection gives us confidence that a manager is going to keep trying to improve their impact. Because improvement is the whole point of impact investing – and we think there is plenty of room for that.


In selecting managers, we particularly appreciate the ability to say what hasn’t worked

One of the ways we recently delved more deeply into the impact that our managers achieve is through a survey. We sent 50 questions across the five criteria in our framework (mission and behaviours, impact process, engagement, catalytic, impact risk management) to our managers asking them to score themselves, and then moderated the results to create our Managing for Impact report.

So, how are our fund managers doing?

We found all our managers are intentionally and primarily investing for impact – that impact drives their decision making and is led from the top of their organisations.

We saw a really high level of engagement, and a lot of managers are driving standards up in their commitment to reflect and improve. One of our managers, Daniel Brewer, CEO of Resonance, described receiving the report with the results of our survey with a sense of ”impact FOMO” (or 'fear of missing out') as he assessed ideas that might be added from the other managers surveyed to inform the way he thinks about the already-excellent Resonance approach to measuring impact.


We find impact reports can read more like marketing than a deep analysis to drive better decision-making

One of our main findings was that managers are not performing as well as they think they are. We moderated managers’ self-assessed scores down against our framework by around 10%, in particular in impact measurement and reporting. Impact reporting typically lacks the rigour of financial reporting, and we find impact reports can often read more like marketing than a deep analysis that can drive better decision-making.

The questions most frequently moderated down were:

  • Is actual impact performance data disclosed to investors and investees?

  • What is the manager’s experience / track record in investing for impact?


What are the challenges in measuring fund manager impact?

Unsurprisingly perhaps, we found that it was really difficult to assess the additional contribution that managers made to their investments. Managers are not yet starting to necessarily think or report in this way and found our approach different from the normal questions they get asked. Most managers are just getting to grips with thinking about the impact of their underlying investments, let alone trying to understand what they as a fund manager bring to the party in addition.


We also found that data verification is predominantly undertaken in-house; we’d like to see a move towards broader use of an independent or external verification party. Connected to our overall call for a reflective approach, we would like to see openness and transparency in impact data and reports, with more acknowledgement of shortcomings, mistakes and associated learnings.


Our manager Circularity Capital is a useful case study here. We invested in their first fund which invests in growth enterprises in the circular economy. Circularity report on a quarterly basis sharing a good range of finance and impact data. Each portfolio company’s impact performance is tracked using relevant KPIs – for example, Winnow, which has developed a tech solution to monitor and control food waste, reports against the following KPIs: waste reduction, water saved, greenhouse gas reduction and number of meals saved. Each impact report is produced internally and verified by an independent third party to test the methodology and assumptions of the data collected from its enterprises. Circularity is committed to improving its measurement and reporting processes and engages openly and constructively to feedback.

What’s next?

Impact is not easy to measure. Look at the skills and resources that charities and social enterprises pour into trying to understand whether they have made progress against their mission. So, given the rapid pace of change we’ve seen in the four years we’ve been operating at Snowball, is it reasonable to expect impact funds to have nailed this in double quick time?

We don’t think so – and if they say they have, we don’t believe them. We’re nervous when we hear claims that sound too perfect. We believe that this is the beginning of a journey which will only end up with long-term systemic change if proper time and focus is given to ensure that impact standards develop at the same pace that impact investment opportunities are. We want to invest with managers that think that too.


We’re nervous when we hear claims that sound too perfect. We believe that this is the beginning of a journey

Changing behaviours takes time and so impact investors need to be collaborative – sharing what works to move investment toward the tipping point. We really encourage experimentation and innovation. We’ve found one simple but powerful action is encouraging our managers to read each other’s impact reports to spot ways to develop their own. One manager who didn’t have an impact framework in place is now using our survey questions as a way to articulate their impact. We like to see more data rather than less, and impact reporting that is reflective and open. Our survey found that our managers are keen to use their position to be catalytic and are making significant efforts to build the field by adopting and contributing to industry measurement frameworks and initiatives talking at conferences and engaging with a wider audience.


At Snowball we are working to continually improve too, and to share what we’re learning. Our report showcases some of the great work of our managers and we hope it also contributes to the sector’s ongoing conversation around the impact a fund manager can have on their investments – investor contribution. We will continue to work alongside industry initiatives like the Impact Management Project and Impact Frontiers to develop best practice while also sharing the ways we develop own framework.


  • Abigail Rotheroe is investment director at Snowball. Read the full report on fund manager impact, Managing for Impact, and email hello@snowball.im with your views and suggestions for improvement.