KBI Global Investors reveals impact scores for its strategies using novel methodology

clock • 4 min read
KBI Global Investors reveals impact scores for its strategies using novel methodology

Dublin-based manager boutique asset manager KBI Global Investors confirmed the Impact measurement scores for its investment strategies for 2020 - the percentage of revenues contributing to the achievement of the UN Sustainable Development Goals.

Its Revenue Alignment SDG Scores (RASS) are based on portfolio holdings at the end of December 2020, using the most recent available data.

The firm's proprietary research methodology, introduced to the market in 2017 in the absence of any agreed or common approach to Impact reporting or Impact measurement, calculates the contribution of constituent portfolio holdings to delivery of the SDGs and is amongst the most advanced in the rapidly developing field of impact measurement.

Many companies still do not even attempt to report on the Impact of their own operation, and for the companies that do, it has been nigh impossible to compare the results with those reported by other firms."

KBIGI remains one of a small band of managers with this type of capability. Its methodology involves identifying the various business activities of an investee company, forming a view as to the SDGs which each activity is aligned with, and the positive and/or negative contribution which each makes to those SDGs.

Eoin Fahy, head of responsible investing said: "Many companies still do not even attempt to report on the Impact of their own operation, and for the companies that do, it has been nigh impossible to compare the results with those reported by other firms. Data suppliers have recognised this gap and are beginning to provide investors (and asset owners) with reports on the extent to which investment portfolios are aligned with the SDGs."

He added: "But to date, this has not been fully satisfactory. Data does not seem to be available at the right level of granularity (particularly for smaller companies), and in our opinion this kind of work faces considerable challenges if not carried out by portfolio managers or analysts who know ‘their' companies extremely well.

"Rather than simply having an anecdotal sense that investments in these strategies contribute to the achievement of the SDGs, we have been able to quantify this in a replicable and transparent methodology. That we have been able to quantify the impact score of our portfolios in this unique and proprietary way gives us an edge, and we believe we are one of very few managers to measure and account for a negative element when looking to measure Impact.

That negative element has proven to be a huge positive, creating a further opportunity to engage with management at our portfolio companies."

With KBIGI's suite of Natural Resources strategies investing in companies providing solutions to the global shortages of clean water, energy and food - sustainable infrastructure too - these portfolios unsurprisingly show a high level of Impact.

Nevertheless, at 78.0% (up +6.0% year on year), the firm's Water Strategy shows a particularly high RASS score. The Strategy has a small negative impact on two of the nine SDGs to which it is aligned, one more than in 2020.

While KBIGI's Energy Solutions Strategy contributes to just seven SDGs, it registers a negative score on as many as three, one more than the previous year, with its RASS score falling 7.9% to 71.2%.

Each score represents a net figure, following the deduction of the negative contribution.

The lower RASS score delivered by the Energy Solutions Strategy this year was the result of KBIGI strengthening its research methodology and applying stricter definitions, with six ‘new' business activities (those that were not present in the portfolio in previous years) added for consideration.

This year KBIGI's Responsible Investing Committee focused on the business activities of constituent holdings related to fossil fuels. As a result, the Responsible Investing team was tasked with further research work.

With the Energy Solutions strategy, the portfolio managers and the committee discussed the controversies around biomass and how it should be treated, with six new business activities added for evaluation.

It is a debate paralleled by the backlash the European Commission has suffered over its decision to delay part of its landmark classification system for investors - the Taxonomy - with a dispute raging about the way in which energy sources such as natural gas and nuclear power (industries which generate 80% of all European emissions) should be labelled.

Following lengthy debate and consideration of various relevant issues, including the carbon cycle of trees/timber, the Committee decided that wood pellet production should be treated as neutral and burning as negative.